Attached files
| file | filename |
|---|---|
| EX-31.1 - China Industrial Waste Management Inc. | v168269_ex31-1.htm |
| EX-31.2 - China Industrial Waste Management Inc. | v168269_ex31-2.htm |
| EX-32.2 - China Industrial Waste Management Inc. | v168269_ex32-2.htm |
| EX-32.1 - China Industrial Waste Management Inc. | v168269_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K/A
(Mark
One)
x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
Fiscal Year Ended December 31,
2008
or
¨ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ________________ to __________________
Commission
File Number 002-95836-NY
CHINA INDUSTRIAL WASTE
MANAGEMENT, INC.
(Exact
name of registrant as specified in its charter)
|
Nevada
|
13-3250816
|
|
(State
or other jurisdiction of incorporation or
organization)
|
|
|
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)
|
Registrant’s
telephone number, including area code 011-86-411-85811229
Securities
registered pursuant to Section 12(b) of the Act:
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well known seasoned issuer, as defined in
Rule 405 of the Securities Act.
¨ Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section to file reports pursuant to Section 13 or 15(d) of the Act.
¨ Yes x No
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.
x Yes ¨ No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company:
|
Large
accelerated filer
|
¨
|
Accelerated
filer
|
¨
|
|
Non-accelerated
filer
(Do
not check if smaller reporting company)
|
¨
|
Smaller
reporting company
|
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
¨ Yes x No
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked prices of such common equity, as of the last
business day of the registrant's most recently completed second fiscal quarter.
$10,243,516.95 as of June 30, 2008.
Indicate
the number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date. 15,262,035 shares of common stock are
issued and outstanding as of March 31, 2009.
DOCUMENTS
INCORPORATED BY REFERENCE
List
hereunder the following documents if incorporated by reference and the Part of
the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be
clearly described for identification purposes (e.g., annual report to security
holders for fiscal year ended December 24, 1980).
None.
The
following discussion should be read in conjunction with the audited consolidated
financial statements of the Company and the notes thereto included in this
report. Readers should also carefully review the risks and uncertainties
described elsewhere in this report under “Risk Factors.”
FORWARD-LOOKING
STATEMENTS
This
Annual Report contains forward-looking statements within the meaning of federal
securities laws. These include statements about our expectations, beliefs,
intentions or strategies for the future, which we indicate by words or phrases
such as “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,”
“management believes” and similar language. The forward-looking statements are
based on the current expectations of management and are subject to certain
risks, uncertainties and assumptions, including those described elsewhere
in this report under “Risk Factors.” Actual results may differ materially from
results anticipated in these forward-looking statements. We base the
forward-looking statements on information currently available to us, and we
assume no obligation to update them. Investors are also advised to refer to the
information in our filings with the Securities and Exchange Commission, in which
we discuss in greater detail various important factors that could cause actual
results to differ from expected or historic results. It is not possible to
foresee or identify all of the risks and uncertainties that could affect
us.
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 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 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.
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 650
customers, including large multinational corporations, from facilities located
in the Economic and Technological 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 municipal sewage generated by Dalian. The
project has entered into commercial operation since June 21, 2008. Dongtai
owns 80% of the equity of this
project.
|
|
|
·
|
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. As of December 31,
2008, the project was in the facility commissioning
stage.
|
|
|
·
|
Dalian
Lipp Environmental Energy Engineering & Technology Co., Ltd. (“Dalian
Lipp”), is a joint venture, and 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 tank building technique, and
is dedicated to generating energy by organic waste anaerobic
fermentation, and industrial effluent and municipal sewage treatment
plant.
|
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. The expansion
project, which is one of the fifty-five hazardous waste treatment centers
sponsored by the National Development and Reform Commission and one of the two
centers in Liaoning Province, commenced construction at the end of July, 2008.
Construction of the incineration plant has been completed and on-site
construction will resume in mid-March 2009 after the winter break. The Company
expects the project to be operational by September 2009.
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:
-2-
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, 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.
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. Payment terms of sales vary from cash on delivery
through a credit term of up to nine to twelve months.
RESULTS OF
OPERATIONS
The
following discussion should be read in conjunction with the consolidated
financial statements and notes appearing elsewhere in this annual
report.
Revenues
We
generate revenue primarily from two sources, namely, fees charged to customers
for waste collection, transfer, recycling and disposal services and that from
the sale of recycled commodities. We consider our collection and disposal
operations and reclamation of reusable substances as our core
business.
Total
revenue for the year ended December 31, 2008, was $13,399,884, an increase of
$3,860,377 or 40.47% from $9,539,507 for the same period in 2007. The
increase in revenue is attributable to a broadened customer base and increased
demand from existing customers.
|
Years Ended December 31,
|
|||||||||
|
2008
|
2007
|
||||||||
|
Service
fees
|
$ | 8,182,379 | $ | 5,004,926 | |||||
|
Sales
of cupric sulfate
|
1,806,721 | 1,817,861 | |||||||
|
Sales
of recycled commodities
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3,410,783 | 2,716,720 | |||||||
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Total
|
$ | 13,399,884 | $ | 9,539,507 | |||||
Service
fee revenue for the year ended December 31, 2008 was $8,182,379 which was 61.06%
of total revenue for this year and an increase of $3,177,453 or 63.49% increase
over the $5,004,926 in service fee revenue we generated in the year ended
December 31, 2007. Service fee accounted for 52.47% of our total revenue for the
year ended December 31, 2007. Besides the positive influence of a broadened
customer base and increased demand from existing customers, Dongtai Water’s
commencement of commercial operation since June 2008 also contributed
approximately $ 447,630 to the increase of service fee.
Sales of
cupric sulfate for the year ended December 31, 2008 was $ 1,806,721 or 13.48% of
total revenue, which was a slight decrease over that of 2007. Due to the global
economic recession, the price of copper and copper compounds, such as cupric
sulfate, decreased sharply in 2008, which caused the sales
decrease.
-3-
Sales of
recycled products were $3,410,783 or 25.45% of total revenue for the year ended
December 31, 2008. Sales of recycled products in 2008 increased by $694,063 or
25.55% over the year ended December 31, 2007.
Cost of
Revenues
Costs of
revenues primarily include labor expenses (salaries, benefits, insurance and
other benefits), depreciation, materials, transportation costs, rent, repair
costs and other sundry expenses. Costs of revenue increased by $1,377,723 or
49.61% from $2,776,921 for the year ended December 31, 2007 to $4,154,644 for
the year ended December 31, 2008.
|
Years Ended December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Cost
of service fees
|
$ | 1,547,677 | $ | 1,251,049 | ||||
|
Cost
of cupric sulfate
|
740,881 | 537,563 | ||||||
|
Cost
of other recycled commodities
|
1,866,086 | 988,309 | ||||||
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Total
|
$ | 4,154,644 | $ | 2,776,921 | ||||
Costs
related to providing services increased by $296,628 or 23.71% from $1,251,049
for the year ended December 31, 2007 to $1,547,677 for the year ended December
31, 2008. Costs related to producing recycled waste products (including cupric
sulfate and other recycled commodities) increased by $1,081,095 or 70.85% from
$1,525,872 for the year ended December 31, 2007 to $2,606,967 for the year ended
December 31, 2008.
Operating
Expenses
Total
operating expenses for the year ended December 31, 2008 was $ 3,544,022 which
represents a decrease of $58,806 or 9.4% from $3,602,828 for the year ended
December 31, 2007.
In 2007,
the Company settled certain legal proceedings in consideration for the payment
to the plaintiff of cash and shares of common stock of the Company. While the
cash and shares were delivered by a third party, in accordance with US GAAP, the
consideration for the settlement was accounted for as expenses, amounting to
$860,460 Excluding
the legal settlement in 2007, operating expense of 2008 in fact increased by $
801,654 compared to that of 2007. Together with the strong revenue growth
resulted from business expansions, extra expenses, such as personnel addition,
intensified marketing activities, were incurred accordingly. Besides that,
starting 2008, the Company obtained professional services in areas such as
investor relations, press release, and consultings, which resulted in the
increase of operating expenses.
Other
Income
In
December 2008, Dongtai received tax refund from the Local Taxation Bureau of ETD
Zone, Dalian, with the amount of RMB 4,504,974 (approximately $648,412). The
refund is to return business tax levied on waste treatment and disposal services
for the period of January 2006 to May 2008. Since June 2008, Dongtai is not
subject to business tax for waste treatment and disposal services any more.
Within the same month, Dongtai also received a subsidy from Dalian Municipal
Bureau of Finance, with the amount of RMB 355,000 (approximately $51,096), to
compensate the service rendered by Dongtai related with the treatment and
disposal of hazardous waste generated by public environment pollution
accident.
Income
Tax
The
Company pursues most of its business in PRC, and so is subject to the PRC
Enterprise Income Tax (“EIT”) at a rate of 25% on its net
income.
-4-
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 9% for the year ended December 31,
2008, which amounted to $659,853.
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. For the year ended December 31,
2008, Dongtai Water is in its first year of the tax holiday. As of
December 31, 2008, Zhuorui and Dalian Lipp were in an accumulated loss status
with no EIT obligation.
LIQUIDITY AND CAPITAL
RESOURCES
Liquidity
is the ability of a company to generate funds to support its current and future
operations, satisfy its obligations and otherwise operate on an ongoing basis.
As of December 31, 2008, we incurred a working capital deficiency of
$0.32 million as compared to a surplus of $2.35 million as of
December 31, 2007, resulting from the expansion project of Dongtai, the
construction and equipment procurement for the establishment of Dongtai Water
and Zhuorui in 2008.
On an
on-going basis, we take steps to identify and plan our needs for liquidity and
capital resources, to fund our planned ongoing construction and day to day
business operations. In addition to working capital to support our routine
activities, we will also require funds for the construction and upgrading
of crucial facilities, acquisition of assets and/or equity, and repayment
of debt.
We
anticipate that our various projects will require us to invest an aggregate of
approximately RMB 90 million (approximately $13 million) in 2009. We will fund
this investment through a combination of net cash flow from operation funds,
bank loans and sales of our securities. While we anticipate that we will be able
to secure necessary funding as and when needed, there is no assurance that such
will be the case. If we are unable to secure funding as and when needed, our
projects may be delayed which may, in turn, cause delays in generating revenues
from the affected projects, and may reduce our profitability.
The
following table provides certain selected balance sheet comparisons between the
years ended December 31, 2008 and December 31, 2007.
|
(In 000’s, except %)
|
December 31,
|
Increase
/(Decrease)
|
Percentage
|
|||||||||||||
|
2008
|
2007
|
|||||||||||||||
|
Working
Capital
|
$ | (322 | ) | 2,345 | $ | (2,667 | ) | (114 | )% | |||||||
|
Cash
|
5,689 | 3,260 | 2,429 | 75 | % | |||||||||||
|
Accounts
receivable, net
|
2,414 | 594 | 1,820 | 306 | % | |||||||||||
|
Inventory
|
2,372 | 1,332 | 1,040 | 78 | % | |||||||||||
|
Advances
to suppliers
|
551 | 390 | 161 | 41 | % | |||||||||||
|
Other
assets
|
123 | 66 | 58 | 88 | % | |||||||||||
|
Total
current assets
|
11,149 | 5,642 | 5,507 | 98 | % | |||||||||||
|
Long
term assets
|
28,293 | 14,887 | 13,406 | 90 | % | |||||||||||
|
Total
assets
|
$ | 39,442 | 20,529 | $ | 18,913 | 92 | % | |||||||||
|
Loans
– short term
|
$ | 3,371 | 1,369 | $ | 2,002 | 146 | % | |||||||||
|
Accounts
payable
|
781 | 280 | 501 | 179 | % | |||||||||||
|
Other
payables
|
211 | 343 | (132 | ) | (38 | )% | ||||||||||
|
Construction
projects payable
|
4,742 | - | 4,742 |
Nm
|
||||||||||||
|
Deferred
sales
|
972 | 667 | 305 | 46 | % | |||||||||||
|
Other
current liabilities
|
1,394 | 638 | 756 | 119 | % | |||||||||||
|
Total
current liabilities
|
11,471 | 3,297 | 8,174 | 248 | % | |||||||||||
|
Asset
retirement obligation liability
|
503 | 438 | 64 | 15 | % | |||||||||||
|
Other
long-term liabilities
|
1,028 | 621 | 407 | 66 | % | |||||||||||
|
Total
liabilities
|
$ | 13,002 | 4,356 | $ | 8,646 | 198 | % | |||||||||
Nm = Not
meaningful
-5-
As of
December 31, 2008, approximately $ 3.4million of our cash reserves are in the
form of RMB held in bank accounts at financial institutions located in the PRC.
The value of cash on deposit in China at December 31, 2008 has been translated
based on the exchange rate as of December 31, 2008. In 1996, Chinese government
introduced regulations which relaxed restrictions on the conversion of the RMB;
however restrictions still remain, including but not limited to restrictions on
foreign invested entities. Foreign invested entities may only buy, sell or remit
foreign currencies after providing valid commercial documents at only those
banks authorized to conduct foreign exchanges. Furthermore, the conversion of
RMB for capital account items, including direct investments and loans, is
subject to PRC government approval. Chinese entities are required to establish
and maintain separate foreign exchange accounts for capital account items. We
cannot be certain Chinese regulatory authorities will not impose more stringent
restrictions on the convertibility of the RMB, especially with respect to
foreign exchange transactions. Accordingly, cash on deposit in banks in the PRC
is not readily deployable by us for purposes outside of China.
As of
December 31, 2008, we incurred a working capital deficiency of $ 0.32 million as
compared to a surplus of $2.35 million as of December 31, 2007. This decrease in
working capital is primarily attributable to the sharp increase of construction
projects payable by $ 4.7 million, which results from the unpaid part of
constructions and equipments for the establishment of Dongtai Water and Zhuorui.
The increase of short-term loan, approximately 2 million, also contributed to
the decrease of working capital.
Our
current assets as of December 31, 2008 increased by $5.50 million, or
approximately 98%, from December 31, 2007 and reflects increase in items
including cash and cash equivalents, account receivable, inventory. Our current
liabilities increased by approximately $8.17 million, or approximately 248%, as
of December 31, 2008 from December 31, 2007. This reflects increases in
short-term loans, accounts payable, deferred sales, construction projects
payable, and other payables.
Our
accounts receivables, net of allowances for doubtful accounts, increased
approximately $1.82 million as of December 31, 2008 year over year. This
increase is directly attributed to the increase in revenue.
Inventories
increased approximately 78% as of December 31, 2008 from the prior period. This
resulted from an increase in recycled products and raw materials.
As of
December 31, 2008, outstanding loans, which were secured, and will mature in
2009, amounted to RMB23, 000,000 ($3,371,198). The loans were acquired to fund
day to day business activities. Due to significantly increased capital spending
requirement, the Company acquired additional loans from banks.
During
2008, the Company completed construction of Dongtai Water facility, and
substantially completed Zhourui construction project. Over the course of the
construction, the Company accrued all costs associated with the projects and as
of December 31, 2008, the balance owed to these suppliers totaled RMB
32,947,133(US$4,742,164). The payment schedules for these suppliers are not
fixed and therefore the entire amount has been classified as construction
projects payable in current liabilities.
Cash
Flows
|
Year Ended December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Net
cash provided by operating activities
|
$ | 4,466,585 | $ | 4,023,077 | ||||
|
Net
cash used in investing activities
|
(8,531,402 | ) | (9,430,109 | ) | ||||
|
Net
cash from financing activities
|
5,204,533 | 1,911,625 | ||||||
-6-
Net
cash provided by operating activities: Net cash provided by
operating activities in the year ended December 31, 2008 increased by $443,508
or 11% over the net cash provided by operating activities for the year ended
December 31, 2007.
Although
the net income for the year ended December 31, 2008 rose by $ 1,066,894, or 29%
comparing to that of 2007, the balance of account receivable as at December 31,
2008 rose by 306%, as compared to that of December 31, 2007, which led to a
sharp decrease of $ 1,821,570 to the net cash provided by operating activities.
Besides, the inventory balance also increased by 78%, which caused a decrease of
$ 1,039,865 to the net cash provided by operating activities. As the global
financial crisis brought down the prices for some of the Company’s
products.
In 2008,
Dalian Lipp signed an agreement with Shenzhen Dongjiang Environmental
Company Limited (“Shenzhen Dongjiang”), pursuant to which Dalian Lipp is to
purchases lipp anaerobic fermentation systems from Lipp GmbH. As of
December 31, 2008, Shenzhen Dongjiang has paid an aggregate of $512,938 to
Dalian Lipp, according to the payment schedule.
Net
cash used in investing activities: Net
cash used in investing activities for the year ended December 31, 2008 decreased
by $898,707 as compared to the same period in 2007.
In 2008,
Dongtai’s expansion project, Dongtai Water and Zhuorui’s facility construction
were continued. As of December 31, 2008, the expansion project of Dongtai was
still in progress; Dongtai Water had commenced operations since June 2008;
Zhuorui entered into the phase of commissioning. Cash outflows resulting from
capital spending on the three projects comprised the major part of the cash used
in investing activities.
The
increase in accounts receivable is attributable to the related party loans made
to Dongtai Organic by Dongtai.
Net
cash provided by financing activities: Net
cash provided by financing activities for the year ended December 31, 2008
increased by $3,292,908 as compared to the same period in 2007.
In 2008,
the Company accomplished three rounds of private placement, and raised
aggregately $ 3,545,057 as equity capital after deducting services fees paid to
lawyers, investment banks, etc. $750,000 of the capital raised was temporarily
frozen in an escrow account until specific terms in the investment agreement are
met.
In 2008,
the Company acquired additional loan from banks to fund day to day operating
activities. The cash inflow from bank loans increased by $ 687,101 comparing to
that of 2007.
In 2008
and 2007, the Company received government subsidies of $407,278 (RMB2, 500,000)
and $596,528 (RMB4, 536,000), which are to be used exclusively for Zhuorui’s
facility construction and equipment procurement.
On a
continuous basis, we emphasize on the management and forecast of our liquidity
and various capital resources, to fund our planned ongoing construction and day
to day business operations. On top of the cash needs for working capitals
fueling our routine activities, we also brace for the capital requirements for:
the construction and upgrading of crucial facilities; acquisitions of assets and
equities; repaying the loans, all of which are set to strengthen our position in
the industry in the long run.
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
|
-7-
|
|
·
|
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
December 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.
The
financial statements of the Company required by this Item 8 are set forth
beginning on page F-3 immediately following the signature page to this annual
report.
Pursuant
to the requirements of Section 13 or 15(d) 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.
|
Dated: December
5, 2009
|
||
|
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
|
||
 |
||
|
By:
|
/s/ Dong Jinqing
|
|
|
Dong
Jinqing
Chief
Executive Officer
|
||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
SIGNATURE
|
TITLE
|
DATE
|
||
 |
||||
|
/s/
Dong Jinqing
|
Chairman
of the Board, Chief Executive Officer and
|
December
5, 2009
|
||
|
Dong
Jinqing
|
Director principal
executive officer
|
|||
 |
||||
|
/s/
Li Jun
|
Chief
Operating Officer and Director
|
December
5, 2009
|
||
|
Li
Jun
|
||||
 |
||||
|
/s/
Guo Xin
|
Chief
Financial Officer and Director, principal financial
|
December
5, 2009
|
||
|
Guo
Xin
|
and accounting officer |
|
Douglas W. Child, CPA
Marty D. Van Wagoner, CPA
J. Russ Bradshaw, CPA
William R. Denney, CPA
Roger B. Kennard, CPA
Russell E. Anderson, CPA
Scott L. Farnes
|
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Audit Committee
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
Dalian,
People’s Republic of China
We
have audited the consolidated balance sheet of CHINA INDUSTRIAL WASTE
MANAGEMENT, INC. (the Company) as of December 31, 2007, and the related
consolidated statements of operations and comprehensive income,
stockholders’ equity and cash flows for the year then
ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements based
on our audit.
|
|
|
1284
W. Flint Meadow Dr. #D
Kaysville,
Utah 84037
Telephone
801.927.1337
Facsimile
801.927.1344
|
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material
misstatement. The company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company’s internal
control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
|
|
|
5296
S. Commerce Dr. #300
Salt
Lake City, Utah 84107
Telephone
801.281.4700
Facsimile
801.281.4701
Suite
B, 4F
North
Cape Commercial Bldg.
388
King’s Road
North
Point, Hong Kong
www.cpaone.net
|
In
our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of CHINA INDUSTRIAL WASTE MANAGEMENT, INC. as of December 31,
2007, and the consolidated results of its operations and its cash flows
for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
Child,
Van Wagoner & Bradshaw, PLLC
Salt
Lake City, Utah
March
19, 2008
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
China
Industrial Waste Management, Inc.
We have
audited the accompanying balance sheet of China Industrial Waste Management,
Inc.
as of
December 31, 2008 and the related statements of operations, changes in
shareholders' equity, and cash flows for the year ended December 31,
2008. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The Company's
financial statements for the year ended December 31, 2007 was audited by other
auditors whose report dated March 19, 2008. The other
auditors' reports have been furnished to us,
and our opinion, insofar as it
relates to amounts included for such
prior period, is based solely on the reports of
such other auditors.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of China Industrial Waste Management,
Inc. as of December 31, 2008 and the results of its operations and its cash flow
for the year then ended December 31, 2008 in conformity with accounting
principles generally
accepted in the United States of America.
/s/
JEWETT, SCHWARTZ, WOLFE & ASSOCIATES
Hollywood,
Florida
March 31,
2009
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
CONSOLIDATED
BALANCE SHEETS
(AUDITED)
|
December 31,
|
December 31,
|
|||||||
|
2008
|
2007
|
|||||||
|
ASSETS
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 5,688,797 | $ | 3,260,307 | ||||
|
Trade
accounts receivable, net
|
2,414,257 | 594,322 | ||||||
|
Other
receivables
|
105,329 | 22,453 | ||||||
|
Inventory
|
2,372,214 | 1,332,349 | ||||||
|
Advances
to suppliers
|
550,931 | 390,159 | ||||||
|
Prepaid
expense
|
17,589 | 42,784 | ||||||
|
Total
current assets
|
11,149,117 | 5,642,374 | ||||||
|
Investment
|
2,794,248 | 2,633,354 | ||||||
|
Property,
plant and equipment, net
|
15,474,915 | 2,642,037 | ||||||
|
Construction
in progress
|
5,738,271 | 7,410,255 | ||||||
|
Land
usage right, net of accumulated amortization
|
1,817,427 | 1,732,074 | ||||||
|
Deposits
|
14,798 | 80,925 | ||||||
|
Related
party receivable
|
1,256,599 | 388,796 | ||||||
|
Escrow
account
|
750,000 | - | ||||||
|
Certificate
of deposit
|
73,287 | - | ||||||
|
Restricted
cash
|
25,204 | - | ||||||
|
Other
asset
|
348,545 | - | ||||||
|
TOTAL
ASSETS
|
$ | 39,442,411 | $ | 20,529,815 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable
|
$ | 780,458 | $ | 279,600 | ||||
|
Short-term
loan
|
3,371,198 | 1,369,000 | ||||||
|
Tax
payable
|
215,240 | 93,954 | ||||||
|
Advance
from customers
|
539,013 | - | ||||||
|
Deferred
sales
|
972,143 | 667,389 | ||||||
|
Accrued
expenses
|
361,111 | 7,236 | ||||||
|
Construction
projects payable
|
4,742,164 | - | ||||||
|
Related
party payable
|
278,490 | 536,362 | ||||||
|
Other
payable
|
211,362 | 343,207 | ||||||
|
Total
current liabilities
|
11,471,179 | 3,296,748 | ||||||
|
Asset
retirement obligation liability
|
502,278 | 437,619 | ||||||
|
Government
subsidy
|
1,028,257 | 620,979 | ||||||
|
TOTAL
LIABILITIES
|
13,001,714 | 4,355,346 | ||||||
|
Minority
interest in subsidiary
|
2,823,126 | 2,259,595 | ||||||
|
Commitments
and contingencies
|
||||||||
|
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;
|
||||||||
|
15,262,035
and 13,220,843 shares issued and outstanding at December 31,
2008
|
||||||||
|
and
2007 respectively
|
15,262 | 13,221 | ||||||
|
Additional
paid-in capital
|
5,644,750 | 1,968,634 | ||||||
|
Other
comprehensive income
|
2,422,167 | 1,153,728 | ||||||
|
Retained
earnings
|
15,535,392 | 10,779,291 | ||||||
|
Total
stockholders' equity
|
23,617,571 | 13,914,874 | ||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 39,442,411 | $ | 20,529,815 | ||||
See notes
to Consolidated Financial Statements.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(AUDITED)
|
Years Ended December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Revenue
|
||||||||
|
Service
fees
|
$ | 8,182,379 | $ | 5,004,926 | ||||
|
Sales
of cupric sulfate
|
1,806,721 | 1,817,861 | ||||||
|
Sales
of recycled commodities
|
3,410,784 | 2,716,720 | ||||||
|
Operating
revenue
|
13,399,884 | 9,539,507 | ||||||
|
Costs
of revenues
|
||||||||
|
Cost
of service fees
|
1,547,677 | 1,251,049 | ||||||
|
Cost
of cupric sulfate
|
740,881 | 537,563 | ||||||
|
Cost
of recycled commodities
|
1,866,086 | 988,309 | ||||||
|
Costs
of revenue
|
4,154,644 | 2,776,921 | ||||||
|
Gross
profit
|
9,245,240 | 6,762,586 | ||||||
|
Operating
expenses
|
||||||||
|
Selling
expenses
|
806,438 | 1,159,069 | ||||||
|
General
and administrative expenses
|
2,737,584 | 2,443,759 | ||||||
|
Total
operating expenses
|
3,544,022 | 3,602,828 | ||||||
|
Income
from operations
|
5,701,218 | 3,159,758 | ||||||
|
Other
income (expense)
|
||||||||
|
Investment
loss
|
(24,733 | ) | (47,923 | ) | ||||
|
Interest
income
|
26,438 | 88,499 | ||||||
|
Other
income
|
725,030 | 15,769 | ||||||
|
Reimbursed
legal costs
|
- | 860,460 | ||||||
|
Other
expense
|
(448,468 | ) | (19,060 | ) | ||||
|
Total
other income
|
278,267 | 897,745 | ||||||
|
Net
income from continuing operations before minority interest, income tax
provision and discontinued operations
|
5,979,485 | 4,057,503 | ||||||
|
Income
tax provision
|
659,853 | - | ||||||
|
Income
from continuing operations
|
5,319,632 | 4,057,503 | ||||||
|
Discontinued
operation
|
||||||||
|
Loss
from operations of discontinued component
|
- | (6,465 | ) | |||||
|
Gain
on disposal of discontinued component
|
- | 1,205 | ||||||
|
Loss
on discontinued operations
|
- | (5,260 | ) | |||||
|
Net
income before minority interest
|
5,319,632 | 4,052,243 | ||||||
|
Minority
interest
|
563,531 | 363,036 | ||||||
|
Net
income
|
4,756,101 | 3,689,207 | ||||||
|
Foreign
currency translation adjustment
|
1,268,440 | 774,007 | ||||||
|
Comprehensive
income
|
$ | 6,024,541 | $ | 4,463,214 | ||||
|
Basic
and diluted weighted average shares outstanding
|
13,755,274 | 13,220,843 | ||||||
|
Basic
and diluted net earnings per share
|
$ | 0.35 | $ | 0.28 | ||||
See notes
to Consolidated Financial Statements.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
(AUDITED)
|
Common Stock
|
Additional Paid
|
Other Comprehensive
|
Total Stockholders'
|
|||||||||||||||||||||
|
Shares
|
Par Value
|
In Capital
|
Income
|
Retained Earnings
|
Equity
|
|||||||||||||||||||
|
Balance
December 31, 2006
|
13,220,843 | $ | 13,221 | $ | 1,952,634 | $ | 379,721 | $ | 7,090,084 | $ | 9,435,660 | |||||||||||||
|
Shares
issued for services
|
- | - | 16,000 | - | - | 16,000 | ||||||||||||||||||
|
Change
in foreign currency translation gain
|
- | - | - | 774,007 | - | 774,007 | ||||||||||||||||||
|
Net
Income for the year ended December 31, 2007
|
- | - | - | - | 3,689,207 | 3,689,207 | ||||||||||||||||||
|
Balance
December 31, 2007
|
13,220,843 | $ | 13,221 | $ | 1,968,634 | $ | 1,153,728 | $ | 10,779,291 | $ | 13,914,874 | |||||||||||||
|
Shares
issued for services
|
50,000 | 50 | 133,050 | - | - | 133,100 | ||||||||||||||||||
|
Shares
issued for private placement
|
1,941,192 | 1,941 | 1,857,280 | - | - | 1,859,221 | ||||||||||||||||||
|
Warrants
issued for private placement
|
- | - | 1,174,370 | - | - | 1,174,370 | ||||||||||||||||||
|
Stock
issuance cost
|
50,000 | 50 | 112,950 | - | - | 113,000 | ||||||||||||||||||
|
Stock
issuance cost-Warrants
|
- | - | 398,466 | - | - | 398,466 | ||||||||||||||||||
|
Change
in foreign currency translation gain
|
- | - | - | 1,268,439 | - | 1,268,439 | ||||||||||||||||||
|
Net
Income for the year ended December 31, 2008
|
- | - | - | - | 4,756,101 | 4,756,101 | ||||||||||||||||||
|
Balance
December 31, 2008
|
15,262,035 | $ | 15,262 | $ | 5,644,750 | $ | 2,422,167 | $ | 15,535,392 | $ | 23,617,571 | |||||||||||||
See notes
to Consolidated Financial Statements.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(AUDITED)
|
Years ended December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
income
|
$ | 4,756,101 | $ | 3,689,207 | ||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
|
Minority
interest
|
563,531 | 363,036 | ||||||
|
Depreciation
|
644,901 | 428,696 | ||||||
|
Amortization
|
25,578 | 37,729 | ||||||
|
Bad
debt allowance
|
1,635 | 3,476 | ||||||
|
Stock
issued for services
|
133,100 | 16,000 | ||||||
|
Accretion
expenses
|
64,659 | 28,235 | ||||||
|
Loss
on disposal of subsidiary
|
- | 5,260 | ||||||
|
Loss
on equity investment
|
24,733 | 47,923 | ||||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(1,821,570 | ) | (419,185 | ) | ||||
|
Inventory
|
(1,039,865 | ) | (660,714 | ) | ||||
|
Other
receivables
|
(82,876 | ) | 114,945 | |||||
|
Advance
to suppliers
|
(160,772 | ) | 1,778 | |||||
|
Prepaid
expense
|
25,195 | (20,058 | ) | |||||
|
Certificate
of deposit
|
(73,287 | ) | - | |||||
|
Deposits
|
66,127 | (72,042 | ) | |||||
|
Other
assets
|
(348,545 | ) | - | |||||
|
Accrued
expense and deferred sales
|
658,629 | 163,225 | ||||||
|
Accounts
payable
|
369,012 | 211,828 | ||||||
|
Advance
from customers
|
539,013 | - | ||||||
|
Tax
payable
|
121,286 | 83,738 | ||||||
|
Net
cash provided by operating activities
|
4,466,585 | 4,023,077 | ||||||
|
Cash
flows from investing activiies
|
||||||||
|
Investment
in subsidiary
|
(185,627 | ) | (2,643,351 | ) | ||||
|
Purchase
of property and equipment
|
(5,281,145 | ) | (183,326 | ) | ||||
|
Construction
contracts
|
(1,938,955 | ) | (6,677,654 | ) | ||||
|
Payments
from related party
|
- | 11,092 | ||||||
|
Proceeds
to related party
|
(867,803 | ) | - | |||||
|
Payments
to related party
|
(257,872 | ) | 28,932 | |||||
|
Proceeds
on sale of subsidiary
|
- | 34,198 | ||||||
|
Net
cash used in investing activities
|
(8,531,402 | ) | (9,430,109 | ) | ||||
|
Cash
flows from financing activities
|
||||||||
|
Proceeds
from short term loans
|
3,371,198 | 1,315,097 | ||||||
|
Repayment
of shor term loans
|
(1,369,000 | ) | - | |||||
|
Proceeds
from issuance of common stock, net of offering costs
|
3,545,057 | - | ||||||
|
Escrow
account
|
(750,000 | ) | - | |||||
|
Subsidy
received from government
|
407,278 | 596,528 | ||||||
|
Net
cash provided by financing activities
|
5,204,533 | 1,911,625 | ||||||
|
Effect
of exchange rate on cash
|
1,313,978 | 276,736 | ||||||
|
Net
increase (decrease) in cash and cash equivalents
|
2,453,694 | (3,218,671 | ) | |||||
|
Cash
and cash equivalents, beginning of period
|
3,260,307 | 6,478,978 | ||||||
|
Cash
and cash equivalents, end of period
|
$ | 5,714,001 | $ | 3,260,307 | ||||
|
Supplemental
cash flow information:
|
||||||||
|
Cash
paid during the year for:
|
||||||||
|
Interest
|
$ | 304,684 | $ | - | ||||
|
Income
taxes
|
$ | 441,170 | $ | - | ||||
|
Non-cash
financing activities:
|
||||||||
|
Completed
construction projects
|
$ | 4,742,164 | $ | - | ||||
|
Common
stock issuance cost -warrants
|
$ | 398,466 | $ | - | ||||
|
Common
stock issuance cost-stock
|
$ | 113,000 | $ | - | ||||
See notes
to Consolidated Financial Statements.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
1. Nature of operations
The
accompanying consolidated financial statements are those of China Industrial
Waste Management, Inc., a Nevada corporation (the “Company”) incorporated on
November 12, 2003, its wholly owned subsidiaries, DonTech Waste Services Inc., a
Delaware corporation (“DonTech”), and Favour Group Ltd., a British Virgin
Islands corporation (“Favour”), along with its indirectly majority owned
subsidiaries:
• Full
Treasure Investments Ltd. (“Full Treasure”)
• Dalian
Dongtai Industrial Waste Treatment Co. Ltd. (“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”)
On
September 18, 2008, the Company registered Favour Group in British Virgin
Islands (“BVI”). Simultaneously, the Company set up Full Treasure in Hong Kong.
Favour and Full Treasure were established to facilitate the Company with certain
financing requirement.
Dongtai
is engaged in the collection, treatment, disposal, and recycling of industrial
wastes 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 Technology 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, a build-operate-transfer project established to process municipal waste
water generated by Dalian. The project commenced commercial operation on June
21, 2008.
Zhuorui
engages in recycling of waste catalysts by plasma arc melting and chemical
processing. This subsidiary is now in the stage of facility
commissioning.
Dalian
Lipp is engaged in sales of anaerobic fermentation systems developed by Lipp
GmbH, and post-sales technical services.
2. Basis of
Presentation
The
accompanying consolidated financial statements include the accounts of the
parent entity, its directly wholly owned subsidiaries, DonTech, Favour, along
with its indirectly wholly owned subsidiaries, Full Treasure, its 90% indirectly
owned subsidiary Dongtai, its 80% indirectly owned subsidiary Dongtai Water, its
70% indirectly owned subsidiary Zhuorui, and its 75% indirectly owned subsidiary
Dalian Lipp. 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.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
3. Summary of Significant Accounting Policies
Use of
estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Foreign currency
translation
As of
December 31, 2008 and 2007, the accounts of the Company were maintained, and the
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. Restricted cash consists of the followings:
$750,000 in a separate escrow account as required by a group of investors;
$73,287 in certificate of deposit in Bank of Dalian, which matures on June 11,
2009; and $25,204 of government subsidy, which is to be used exclusively for
Zhuorui’s facility construction and equipment procurement.
Accounts and other
receivables
Accounts
and other receivables are recorded at net realizable value consisting of the
carrying amount less an allowance for uncollectible accounts, as needed.
Allowance for uncollectible accounts as of December 31, 2008 and December 31,
2007 is $12,132 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. 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.
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.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
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
December 31, 2008, construction in progress contains two principal components;
one is the costs incurred by Dongtai for the newly built incineration system
that is located in Dagu Hill, ETD Zone, Dalian, including designing and building
of the incinerator, construction of its supporting facilities, and miscellaneous
fees. The other component is payment for equipments for Zhuorui, including
plasma furnace, flue gas cleansing system, dust trapper, and other corollary
equipment, which are now in the installation and testing phase. Construction in
progress includes capitalized interest of $75,909 and $77,353 as of December 31,
2008 and 2007.
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.
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:
|
December 31,2008
|
December 31,2007
|
|||||||
|
Long-term
Liability
|
$ | 502,278 | $ | 437,619 | ||||
Long-term
investment
Long-term
investments are recorded under the equity method. Dongtai Organic is
constructing and was organized to operate a municipal sludge treatment and
disposal facility in Dalian, PRC. The Company currently owns 49% of Dongtai
Organic.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
Impairment of long-lived assets
In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (SFAS No.144), certain assets 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 December 31, 2008 and 2007,
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.
As of
December 31, 2008 and 2007, net land usage right was $1,817,427 and $1,732,074
respectively.
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
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 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 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 December 31, 2008 and 2007 deferred sales amounted to $972,143 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 years ended
December 31, 2008 and 2007 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.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
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
9% for the year ended December 31, 2008. 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. For the year ended December 31, 2008, Dongtai Water is in its first year
of the tax exemption.
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 2007 financial statements to conform to
the 2008 presentation.
Recent accounting
pronouncements
Employers’
Disclosures about Postretirement Benefit Plan Assets
In
December 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position on Financial Accounting Standard (“FSP FAS”) No. 132(R)-1,
“Employers’ Disclosures about Postretirement Benefit Plan Assets.” This FSP
amends FASB Statement No. 132(R) (“SFAS No. 132(R)”), “Employers’ Disclosures
about Pensions and Other Postretirement Benefits,” to provide guidance on an
employer’s disclosures about plan assets of a defined benefit pension or other
postretirement plan. FSP FAS No. 132(R)-1 also includes a technical amendment to
SFAS No. 132(R) that requires a nonpublic entity to disclose net periodic
benefit cost for each annual period for which a statement of income is
presented. The required disclosures about plan assets are effective for fiscal
years ending after December 15, 2009. The technical amendment was
effective upon issuance of FSP FAS No. 132(R)-1. The Company is currently
assessing the impact of FSP FAS No. 132(R)-1 on its consolidated financial
position and results of operations.
Effective
Date of FASB Interpretation No. 48 for Certain Nonpublic
Enterprises
In
December 2008, the FASB issued FSP FIN No. 48-3, “Effective Date of FASB
Interpretation No. 48 for Certain Nonpublic Enterprises.” FSP FIN No. 48-3
defers the effective date of FIN No. 48, “Accounting for Uncertainty in Income
Taxes,” for certain nonpublic enterprises as defined in SFAS No. 109,
“Accounting for Income Taxes.” However, nonpublic consolidated entities of
public enterprises that apply U.S. generally accepted accounting principles
(“GAAP”) are not eligible for the deferral. FSP FIN No. 48-3 was
effective upon issuance. The impact of adoption was not material to the
Company’s consolidated financial condition or results of
operations.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities
In
December 2008, the FASB issued FSP FAS No. 140-4 and FIN No. 46(R) -8,
“Disclosures by Public Entities (Enterprises) about Transfers of Financial
Assets and Interests in Variable Interest Entities.” This FSP amends SFAS No.
140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” to require public entities to provide
additional disclosures about transfers of financials assets. FSP FAS No.
140-4 also amends FIN No. 46(R)-8, “Consolidation of Variable Interest
Entities,” to require public enterprises, including sponsors that have a
variable interest entity, to provide additional disclosures about their
involvement with a variable interest entity. FSP FAS No. 140-4 also requires
certain additional disclosures, in regards to variable interest entities, to
provide greater transparency to financial statement users. FSP FAS No. 140-4 is
effective for the first reporting period (interim or annual) ending after
December 15, 2008, with early application encouraged. The Company is currently
assessing the impact of FSP FAS No. 140-4 on its consolidated financial position
and results of operations.
Accounting
for an Instrument (or an Embedded Feature) with a Settlement Amount That is
Based on the Stock of an Entity’s Consolidated Subsidiary
In
November 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue No.
08-8, “Accounting for an Instrument (or an Embedded Feature) with a Settlement
Amount That is Based on the Stock of an Entity’s Consolidated Subsidiary.” EITF
No. 08-8 clarifies whether a financial instrument for which the payoff to the
counterparty is based, in whole or in part, on the stock of an entity’s
consolidated subsidiary is indexed to the reporting entity’s own stock.
EITF No. 08-8 also clarifies whether or not stock should be precluded from
qualifying for the scope exception of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” or from being within the scope of EITF No.
00-19, “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock.” EITF No. 08-8 is effective for
fiscal years beginning on or after December 15, 2008, and interim periods within
those fiscal years. The Company is currently assessing the impact of EITF No.
08-8 on its consolidated financial position and results of
operations.
Accounting
for Defensive Intangible Assets
In
November 2008, the FASB issued EITF Issue No.08-7, “Accounting for Defensive
Intangible Assets.” EITF No. 08-7 clarifies how to account for defensive
intangible assets subsequent to initial measurement. EITF No. 08-7 applies to
all defensive intangible assets except for intangible assets that are used in
research and development activities. EITF No.08-7 is effective for intangible
assets acquired on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. The Company is currently assessing the
impact of EITF No.08-7 on its consolidated financial position and results of
operations.
Equity
Method Investment Accounting Considerations
In
November 2008, the FASB issued EITF Issue No.08-6 (“EITF No.08-6”), “Equity
Method Investment Accounting Considerations.” EITF No. 08-6 clarifies accounting
for certain transactions and impairment considerations involving the equity
method. Transactions and impairment dealt with are initial measurement,
decrease in investment value, and change in level of ownership or degree of
influence. EITF No.08-6 is effective on a prospective basis for fiscal years
beginning on or after December 15, 2008. The Company is currently assessing the
impact of EITF No.08-6 on its consolidated financial position and results of
operations.
Determining
the Fair Value of a Financial Asset When the Market for That Asset is Not
Active
In
October 2008, the FASB issued FSP FAS No.157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active.” This FSP
clarifies the application of SFAS No.157, “Fair Value Measurements,” in a market
that is not active. The FSP also provides examples for determining the
fair value of a financial asset when the market for that financial asset is not
active. FSP FAS No.157-3 was effective upon issuance, including prior periods
for which financial statements have not been issued. The impact of
adoption was not material to the Company’s consolidated financial condition or
results of operations.
Issuer’s
Accounting for Liabilities Measured at Fair Value with a Third-Party Credit
Enhancement
In
September 2008, the FASB issued EITF Issue No.08-5 (“EITF No.08-5”), “Issuer’s
Accounting for Liabilities Measured at Fair Value with a Third-Party Credit
Enhancement.” This FSP determines an issuer’s unit of accounting for a liability
issued with an inseparable third-party credit enhancement when it is measured or
disclosed at fair value on a recurring basis. FSP EITF No.08-5 is effective on a
prospective basis in the first reporting period beginning on or after December
15, 2008. The Company is currently assessing the impact of FSP EITF No.08-5 on
its consolidated financial position and results of operations.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161
In
September 2008, the FASB issued FSP FAS No.133-1, “Disclosures about Credit
Derivatives and Certain Guarantees:An Amendment of FASB Statement No.133 and
FASB Interpretation No.45; and Clarification of the Effective Date of FASB
Statement No.161.” This FSP amends FASB Statement No.133, “Accounting for
Derivative Instruments and Hedging Activities,” to require disclosures by
sellers of credit derivatives, including credit derivatives embedded in a hybrid
instrument. The FSP also amends FASB Interpretation No. 45, “Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others,” to require and additional disclosure
about the current status of the payment/performance risk of a guarantee.
Finally, this FSP clarifies the Board’s intent about the effective date of FASB
Statement No. 161, “Disclosures about Derivative Instruments and Hedging
Activities.” FSP FAS No.133-1 is effective for fiscal years ending after
November 15, 2008. The Company is currently assessing the impact of FSP FAS
No.133-1 on its consolidated financial position and results of
operations.
Endowments
of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an
Enacted Version of the Uniform Prudent Management of Institutional Funds Act,
and Enhanced Disclosures for all Endowment Funds
In August
2008, the FASB issued FSP FAS No.117-1, “Endowments of Not-for-Profit
Organizations: Net Asset Classification of Funds Subject to an Enacted Version
of the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”), and
Enhanced Disclosures for all Endowment Funds.” The intent of this FSP is to
provide guidance on the net asset classification of donor-restricted endowment
funds. The FSP also improves disclosures about an organization’s endowment
funds, both donor-restricted and board-designated, whether or not the
organization is subject to the UPMIFA. FSP FAS No.117-1 is effective for fiscal
years ending after December 31, 2008. Earlier application is permitted provided
that annual financial statements for that fiscal year have not been previously
issued. The Company is currently assessing the impact for FSP FAS No.117-1 on
its consolidated financial position and results of operations.
Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities
In
June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue
No.03-6-1, “Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities.” The FSP addresses whether
instruments granted in share-based payment transactions are participating
securities prior to vesting and, therefore, need to be included in the earnings
allocation in computing earnings per share under the two-class method. The FSP
affects entities that accrue dividends on share-based payment awards during the
awards’ service period when the dividends do not need to be returned if the
employees forfeit the award. This FSP is effective for fiscal years beginning
after December 15, 2008. The Company is currently assessing the impact of
FSP EITF 03-6-1 on its consolidated financial position and results of
operations.
Determining
Whether an Instrument (or an Embedded Feature) Is Indexed to an entity's Own
Stock
In June
2008, the FASB ratified EITF Issue No.07-5, "Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity's Own Stock" (EITF 07-5). EITF
07-5 provides that an entity should use a two step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument's contingent exercise and
settlement provisions. It also clarifies on the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning
after December 15, 2008. The Company is currently assessing the impact of EITF
07-5 on its consolidated financial position and results of
operations.
Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (
Including Partial Cash Settlement)
In
May 2008, the FASB issued FSP Accounting Principles Board (“APB”) Opinion
No.14-1, “Accounting for Convertible Debt Instruments That May Be Settled
in Cash upon Conversion (Including Partial Cash Settlement)”. The FSP clarifies
the accounting for convertible debt instruments that may be settled in cash
(including partial cash settlement) upon conversion. The FSP requires
issuers to account separately for the liability and equity components of certain
convertible debt instruments in a manner that reflects the issuer's
nonconvertible debt (unsecured debt) borrowing rate when interest cost is
recognized. The FSP requires bifurcation of a component of the debt,
classification of that component in equity and the accretion of the resulting
discount on the debt to be recognized as part of interest expense in our
consolidated statement of operations. The FSP requires retrospective application
to the terms of instruments as they existed for all periods presented. The FSP
is effective for us as of January 1, 2009 and early adoption is not permitted.
The Company is currently evaluating the potential impact of FSP APB 14-1 upon
its consolidated financial statements.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
The
Hierarchy of Generally Accepted Accounting Principles
In May
2008, the FASB issued SFAS No.162, "The Hierarchy of Generally Accepted
Accounting Principles" (SFAS No.162). SFAS No.162 identifies the sources
of accounting principles and the framework for selecting the principles used in
the preparation of financial statements. SFAS No.162 is effective 60 days
following the Securities and Exchange Commission (“SEC”)’s approval of the
Public Company Accounting Oversight Board amendments to AU Section 411, "The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles". The implementation of this standard will not have a material impact
on the Company's consolidated financial position and results of
operations.
Determination
of the Useful Life of Intangible Assets
In April
2008, FASB issued FASB Staff Position on Financial Accounting Standard (“FSP
FAS”) No. 142-3, “Determination of the Useful Life of Intangible Assets”, which
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of intangible assets under
SFAS No.142 “Goodwill and Other Intangible Assets”. The intent of this FSP
is to improve the consistency between the useful life of a recognized intangible
asset under SFAS No.142 and the period of the expected cash flows used to
measure the fair value of the asset under SFAS No.141 (revised 2007) “Business
Combinations” and other U.S.generally accepted accounting principles. The
Company is currently evaluating the potential impact of FSP FAS No.142-3 on its
consolidated financial statements.
Disclosure
about Derivative Instruments and Hedging Activities
In March
2008, the FASB issued SFAS No.161, “Disclosure about Derivative
Instruments and Hedging Activities, an amendment of SFAS
No.133”, (SFAS No.161). This statement requires that objectives for using
derivative instruments be disclosed in terms of underlying risk and accounting
designation. The Company is required to adopt SFAS No. 161 on January 1, 2009.
The Company is currently evaluating the potential impact of SFAS No. 161 on the
Company’s consolidated financial statements.
Delay
in Effective Date
In
February 2008, the FASB issued FSP FAS No.157-2, “Effective Date of FASB
Statement No.157”. This FSP delays the effective date of SFAS No.157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value on a recurring basis (at least annually)
to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years. The impact of adoption was not material to the
Company’s consolidated financial condition or results of
operations.
4.
Inventory
Inventory
at December 31, 2008 and December 31, 2007 consists of raw materials and
recycled commodities as follows:
|
December 31,2008
|
December 31, 2007
|
|||||||
|
Raw
materials
|
$ | 1,130,109 | $ | 786,427 | ||||
|
Recycled
commodities
|
1,242,105 | 545,922 | ||||||
| $ | 2,372,214 | $ | 1,332,349 | |||||
5. Property, plant and
equipment
|
December 31,2008
|
December 31, 2007
|
|||||||
|
Land
and building
|
$ | 9,978,971 | $ | 2,305,868 | ||||
|
Machinery
and equipment
|
6,898,868 | 1,242,966 | ||||||
|
Office
equipment
|
542,174 | 375,433 | ||||||
|
Vehicles
|
911,540 | 773,038 | ||||||
| 18,331,553 | 4,697,305 | |||||||
|
Less
accumulated depreciation
|
(2,856,638 | ) | (2,055,268 | ) | ||||
|
Total
property and equipment, net
|
15,474,915 | 2,642,037 | ||||||
|
Construction
in progress
|
5,738,271 | 7,410,255 | ||||||
|
Total
|
$ | 21,213,186 | $ | 10,052,292 | ||||
Depreciation
expenses amounted to $644,901 and $428,696 for fiscal year 2008 and 2007,
respectively.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
6. Other assets
Other
assets in the amount of $348,545 is comprised of intellectual property rights
and value added tax (“VAT”) debit balance, in the amounts of $10,993 and
$337,552 respectively. VAT is a turnover tax levied on all units and individuals
engaged in the sale of goods, the provision of processing, repair and
replacement services (together referred to as "taxable labor services") and the
importation of goods to the PRC.
7. Short-term
loan
The
following table identifies the material terms of loans outstanding as of
December 31, 2008:
|
Effective Date
|
Mature Date
|
Creditor
|
Type
|
Interest Rate
|
Principal
|
|||||||||
|
02-26-2008
|
02-25-2009
|
Rural
Credit Cooperative Union of Dalian ETD Area
|
Secured
|
9.72 | % | $ | 1,172,591 | |||||||
|
03-21-2008
|
03-21-2009
|
Shanghai
Pudong Development Bank,
Dalian
Branch
|
Secured
|
8.217 | % | 732,869 | ||||||||
|
04-25-2008
|
04-25-2009
|
Shanghai
Pudong Development Bank,
Dalian
Branch
|
Secured
|
8.217 | % | 1,465,738 | ||||||||
| $ | 3,371,198 | |||||||||||||
8. Construction projects
payable
During
2008, the Company completed construction of the Dongtai Water facility, and
substantially completed the Zhourui construction project. An asset of RMB
32,947,133(US$4,742,164) has been recorded in fixed assets and will be
depreciated over the various useful lives of these assets. Several suppliers of
services and equipment were utilized for these projects. Over the course of the
construction, the Company accrued all costs associated with the projects and as
of December 31, 2008, the balance owed to these suppliers totaled RMB
32,947,133(US$4,742,164). The payment schedules for these suppliers are not
fixed and therefore the entire amount has been classified as construction
projects payable in current liabilities.
9. Government
subsidies
Government
subsidies, with the amount of $1,028,257 as of December 31, 2008, 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. Accumulated other
comprehensive income
The
components of accumulated other comprehensive income was as follow:
|
December 31, 2008
|
December 31, 2007
|
|||||||
|
Cumulative
translation adjustment of foreign currency statements
|
$ | 1,268,439 | $ | 774,007 | ||||
11. Related
parties
|
Related Parties
|
Interest Rate
|
Repayment Date
|
Balance as of December 31, 2008
|
|||||||||||||
|
per annum
|
Receivable
|
Payable
|
||||||||||||||
|
Dongtai
Investment
|
- | - | $ | - | $ | 278,490 | ||||||||||
|
Dongtai
Organic
|
4.5 | % | 04-24-2009 | 586,295 | - | |||||||||||
|
Dongtai
Organic
|
4.5 | % | 07-28-2009 | 146,574 | - | |||||||||||
|
Dongtai
Organic
|
8 | % | 10-28-2009 | 58,630 | - | |||||||||||
|
Dongtai
Organic
|
8 | % | 11-12-2009 | 439,722 | - | |||||||||||
|
Dongtai
Organic
|
25,378 | - | ||||||||||||||
|
Total
|
$ | 1,256,599 | $ | 278,490 | ||||||||||||
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
12. Shareholder’s equity
On April
9, 2008, the Company issued 50,000 shares of common stock as compensation for
services to a consulting firm. The fair market value of the stock is
approximately $133,100.
On
September 27, 2008, the Company issued warrants to purchase 150,000 shares of
our common stock to a placement agent as follows: 37,500 with a strike price of
$3.50 per share; 37,500 with a strike price of $4.00 per share; 37,500 with a
strike price of $4.50 per share; and 37,500 with a strike price of $5.00 per
share. The fair market value of each stock warrant was estimated on the date of
grant using the Black-Scholes option-pricing model in accordance with SFAS
No.123(R) using the following weighted-average assumptions: expected dividend
yield 0%; risk-free interest rate of 4.6%; volatility of 120% and an expected
term of 5 years. The Company recognized a stock issuance cost of
$398,466.
In
October 2008, the Company accomplished a private placement of 66 units,
consisting of a total of 1,941,192 shares of common stock and common stock
purchase warrants to purchase an additional 1,941,192 shares at an aggregate
offering price of $3,960,000 to 16 institutional and accredited investors in a
private placement exempt from registration under the Securities Act of 1933 in
reliance on exemptions provided by Regulation D and Section 4(2) of that act.
The price per unit was $60,000. Under the subscription agreements with the
investors, as amended, each unit consisted of 29,412 shares of common stock, one
Class A warrant to purchase 14,706 shares of common stock exercisable until
September 30, 2011 at $2.50 per share and one Class B warrant to purchase 14,706
shares of common stock exercisable until September 30, 2011 at $3.20 per share.
The Company issued another 50,000 shares of common stock to the placement agent
in connection with the private placement, which was recognized as stock issuance
cost in the amount of $113,000.
As of
December 31, 2008, the total outstanding common share of the Company reached to
15,262,035.
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. Earnings per
share
Basic
earnings per common share (“EPS”) are calculated by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
EPS is calculated by adjusting the weighted average outstanding shares, assuming
conversion of all potentially dilutive securities, such as stock options and
warrants, using the treasury stock method. The numerators and denominators used
in the computations of basic and diluted EPS are presented in the following
table:
|
Years Ended December 31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Income
available to common stockholders
|
$ | 4,756,101 | $ | 3,689,207 | ||||
|
Diluted
net income
|
$ | 4,756,101 | $ | 3,689,207 | ||||
|
Weighted
average basic common shares outstanding
|
13,755,274 | 13,220,843 | ||||||
|
Basic
net earnings per share
|
$ | 0.35 | $ | 0.28 | ||||
|
Diluted
net earnings per share
|
$ | 0.35 | $ | 0.28 | ||||
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
15. 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.
16. 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 major asset was cash, in the amount of RMB
399,989 (USD$52,630). 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).
17. Commitment and
Contingency
During
the year ended December 31, 2008, the Company completed a private placement, in
connection with which:
|
l
|
The
Company agreed to establish a board of directors, a majority of whose
members will be “independent” within the meaning of NASDAQ Marketplace
Rule 4200(15); and $650,000 from proceeds of the placement is being held
in escrow until this requirement is
satisfied;
|
|
l
|
The
Company agreed to engage an accounting consultant to assist with the
presentation and delivery of financial reports and related information;
and $100,000 from proceeds of the placement is being held in escrow until
this requirement is satisfied; and
|
|
l
|
The
Company agreed to file a registration statement covering resale of the
1,941,192 shares of common stock sold to the investors; the registration
statement was filed with the United States Securities and Exchange
Commission on December 12, 2008.
|
|
l
|
The
Company is committed to issuing an additional 100,000 shares to the
placement agent upon specific service being rendered. In addition, upon
specific services being rendered, the Company agreed to issue to the
placement agent or its designees, warrants to purchase an aggregate of 6.6
units (10% of the number of units sold to investors) identical to the
units issued to the investors. The 6.6 units consist of an aggregate of
194,120 shares of common stock and warrants to purchase an aggregate of
194,120 shares. The exercise price of the placement agent warrants is
$72,000 per unit.
|
The
Company has purchasing commitments that result from construction contracts and
equipment procurement contracts signed for the development and operation of
Dalian Dongtai's expansion project, Dongtai Water and Zhuorui. As of December
31, 2008, the commitment information is as follows:
|
2009
|
||||
|
Construction
|
$ | 2,975,566 | ||
|
Equipment
|
2,982,285 | |||
|
Total
|
$ | 5,957,851 | ||
18. Subsequent
events
On
January 8, 2009, Dongtai Organic entered into a long-term loan program with the
creditor, China Merchants Bank Co., Ltd. Dalian Peace Square Sub-branch (“CMB”).
Pursuant to the loan agreement, the principal amounts to RMB 85 million
(USD$12.46 million) and matures on January 7, 2017. Dongtai Organic is required
to repay the loan according to a schedule commencing on January 20, 2010 and
continuing thereafter until the maturity date. The loan is to be used
exclusively for the Dongtai Organic BOT Project. A floating interest rate is to
be applied to the loan at a rate that is 5% higher than that of the benchmark
interest rate promulgated by People’s Bank of China from time to time, and is
adjusted every six months. On January 8, 2009, the benchmark interest rate was
5.94% annually. The loan is secured with the assets and exclusive operating
right of the Dongtai Organic BOT Project. As of March 13, 2009, Dongtai Organic
had drawn down the first installment of the loan in the amount of RMB 34 million
(USD$4.98 million).
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2008
On
February 13, 2008, pursuant to the Agreement and Plan of Merger signed by the
Company and DonTech, DonTech shall be merged into CIWT, which would be the
surviving corporation.
On March
16, 2009 (“Effective Date”), the Company filed a Certificate of Ownership and
Merger with the State of Delaware and an Articles of Merger with the State of
Nevada. Since the Effective Date, all assets and obligations of DonTech shall be
transferred to the Company, including 90% interest in Dalian
Dongtai.
On March
27, 2009, the registration statement originally filed by the Company on December
12, 2008 in connection with the private placement of 6.6 units was declared
effective by the Securities and Exchange Commission.