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EX-32.1 - CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - Huixin Waste Water Solutions, Inc.f10q0912ex32i_huixinwaste.htm
EX-31.2 - CERTIFICATIONS OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - Huixin Waste Water Solutions, Inc.f10q0912ex31ii_huixinwaste.htm
EX-32.2 - CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - Huixin Waste Water Solutions, Inc.f10q0912ex32ii_huixinwaste.htm
EX-31.1 - CERTIFICATIONS OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - Huixin Waste Water Solutions, Inc.f10q0912ex31i_huixinwaste.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

 
FORM 10-Q
 
o     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012
 
o      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to______.

HUIXIN WASTE WATER SOLUTIONS, INC.
 (Exact name of registrant as specified in its charter)
 
Cayman Islands
 
000-52339
 
N/A
(State or other jurisdiction of
incorporation or organization)
 
(Commission File Number)
 
(IRS Employee
Identification No.)

#99 Jianshe Road 3, Pengjiang District, Jiangmen City
Guangdong Province, 529000
People’s Republic of China
 (Address of principal executive offices, Zip Code)
 


 (86) (750) 395-9988
 (Issuer Telephone number)
 
 
 (Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o

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

Large accelerated filer o                                                                                                  Accelerated filer o   
Non-accelerated filer x (Do not check if a smaller reporting company)            Smaller reporting company o  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common equity: As of November 13, 2012, there are 20,977,230 ordinary shares, par value $0.00018254172 per share, and 204,198 preference shares, par value $0.000128 per share, are issued and outstanding.
 


 
 
 
 
 
HUIXIN WASTE WATER SOLUTIONS, INC.

QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 30, 2012

TABLE OF CONTENTS

PART 1 - FINANCIAL INFORMATION
 
   
PAGE
     
Item 1.
Financial Statements (Unaudited)
1
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
22
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
30
     
Item 4.
Controls and Procedures
30
   
PART II - OTHER INFORMATION
 
     
Item 1A.
Risk Factors
32
     
Item 6.
Exhibits
32
   
SIGNATURES
33
 
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q.

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
 
 
 

 
 
CERTAIN TERMS USED IN THIS QUARTERLY REPORT ON FORM 10-Q

Except as otherwise indicated by the context, references in this report to “we,” “us,” “our,” “our Company,” or “the Company” are to the combined business of Huixin Waste Water Solutions, Inc. and its consolidated subsidiaries, Wealth Environmental Protection, Wealth Environmental, Jiangmen Huiyuan, and its variable interest entities, Jiangmen Wealth Water, Guizhou Yufeng, and Shanxi Wealth.
 
In addition, unless the context otherwise requires and for the purposes of this report only, references to the following terms have the meaning assigned to each of them hereof:
 
“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
“Guizhou Yufeng” refers to Guizhou Yufeng Melt Co., Ltd., a PRC limited company;
“Hong Kong” refers to the Hong Kong Special Administrative Region of the People’s Republic of China;
“Jiangmen Huiyuan” refers Jiangmen Huiyuan Environmental Protection Technology Consultancy Co. Ltd ., a wholly foreign owned enterprise organized under the PRC laws;
“Jiangmen Wealth Water” refers to Jiangmen Wealth Water Purifying Agent Co., Ltd. , a PRC limited liability company;
“Operating Company” or  “Operating Companies” refers to Jiangmen Huiyuan, Jiangmen Wealth Water, Guizhou Yufeng and Shanxi Wealth;
“PRC,” “China,” and “Chinese,” refer to the People’s Republic of China;
“Renminbi” and “RMB” refer to the legal currency of China;
“SEC” refers to the United States Securities and Exchange Commission;
“Securities Act” refers to the Securities Act of 1933, as amended;
“Shanxi Wealth” refers to Shanxi Wealth Aluminate Materials Co., Ltd., a PRC limited company;
“U.S. dollars,” “dollars” and “$” refer to the legal currency of the United States;
“Wealth Environmental Protection” refers to Wealth Environmental Protection Group, Inc., a British Virgin Islands company; and
“Wealth Environmental Technology” refers to Wealth Environmental Technology Holding, Ltd., a Hong Kong company.
 
 
 

 
 
PART I—FINANCIAL INFORMATION
 
Item 1.
Financial Statements.

HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
 
Page
   
Condensed Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011
2
   
Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2012 and 2011 (Unaudited)
3
   
Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended  September 30, 2012 and 2011 (Unaudited)
4
   
Condensed Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 2012 (Unaudited)
5-6
   
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (Unaudited)
7
   
Notes to Condensed Consolidated Financial Statements (Unaudited)
8-21
 
 
1

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
             
   
September 30,
   
December 31,
 
   
2012
   
2011
 
   
(UNAUDITED)
       
ASSETS
             
Current assets:
           
Cash and cash equivalents
 
$
54,480,465
   
$
26,383,537
 
Restricted cash
   
120,000
     
670,000
 
Accounts receivable
   
3,256,909
     
2,372,832
 
Note receivable
   
-
     
25,187,727
 
Interest receivable
   
-
     
156,085
 
Inventories
   
1,192,677
     
957,509
 
Advances to suppliers
   
-
     
3,825,386
 
Other current assets
   
18,730
     
14,168
 
                 
Total current assets
   
59,068,781
     
59,567,244
 
                 
Property, plant and equipment and land and mining rights, net
   
13,867,629
     
14,627,533 
 
Deposit for mining right acquisition
   
31,650,477
     
-
 
Total assets
 
$
104,586,887
   
$
74,194,777
 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                 
Current liabilities: 
               
Short –term debt
 
$
12,660,191
   
$
-
 
Accounts payable
   
2,554,309
     
1,855,530
 
Accrued expenses
   
1,217,346
     
1,533,878
 
Due to shareholders
   
15,226
     
15,226
 
Value added taxes payable
   
764,723
     
497,581
 
Other taxes payable
   
154,971
     
90,150
 
Income tax payable
   
1,947,617
     
1,286,537
 
                 
Total current liabilities
   
19,314,383
     
5,278,902
 
                 
Deferred income taxes
   
312,446
     
311,339
 
                 
Total liabilities
   
19,626,829
     
5,590,241
 
                 
Commitments and contingencies 
               
                 
Shareholders' equity: 
               
Preferred stock, $0.000128 par value, 781,250 shares authorized, 444,804 shares issued and outstanding on September 30, 2012 and December 31, 2011
   
57
     
57
 
Common stock: $0.00018254172 par value, 39,062,500 shares authorized, 19,600,305 shares issued and outstanding on September 30, 2012 and December 31, 2011
   
3,578
     
3,578
 
Additional paid-in capital
   
24,283,222
     
24,283,222
 
Accumulated other comprehensive income
   
6,842,983
     
6,492,658
 
Retained earnings (the restricted portion of retained earnings is $496,396 on September 30, 2012 and December 31, 2011)
   
53,830,218
     
37,825,021
 
                 
Total shareholders’ equity 
   
84,960,058
     
68,604,536
 
                 
Total liabilities and shareholders’ equity 
 
$
104,586,887
   
$
74,194,777
 

The accompanying notes form an integral part of these consolidated financial statements
 
 
2

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Net revenue
 
$
22,407,329
   
$
19,335,053
   
$
61,298,540
   
$
52,761,618
 
Cost of revenue
   
12,308,208
     
10,759,594
     
33,746,528
     
28,364,739
 
                                 
Gross profit
   
10,099,121
     
8,575,459
     
27,552,012
     
24,396,879
 
                                 
Operating expenses:
                               
  Selling and marketing
   
797,674
     
568,573
     
2,218,268
     
1,590,600
 
  General and administrative
   
1,490,942
     
1,184,947
     
3,826,647
     
3,347,284
 
  Research and development
   
151,176
     
149,191
     
470,722
     
438,936
 
    Total operating expenses
   
2,439,792
     
1,902,711
     
6,515,637
     
5,376,820
 
                                 
  Income from operations
   
7,659,329
     
6,672,748
     
21,036,375
     
19,020,059
 
                                 
Other income/(expense):
                               
  Interest income
   
79,596
     
99,281
     
708,023
     
163,084
 
  Interest expense
   
(228,123
)
   
-
     
(284,243
)
   
-
 
    Total other income/(expense)
   
(148,527
   
99,281
     
423,780
     
163,084
 
                                 
Income before provision for income taxes
   
7,510,802
     
6,772,029
     
21,460,155
     
19,183,143
 
                                 
Provision for income taxes
   
1,901,646
     
1,696,209
     
5,454,958
     
4,865,974
 
                                 
Net income
   
5,609,156
     
5,075,820
     
16,005,197
     
14,317,169
 
Less cumulative dividends on preferred stock
   
100,081
     
100,081
     
300,243
     
300,243
 
Net income attributable to common shareholders
 
$
5,509,075
   
$
4,975,739
   
$
15,704,954
   
$
14,016,926
 
                                 
Net income per common share  - basic
 
$
0.28
   
$
0.25
   
$
0.80
   
$
0.72
 
                                 
Net income per common share  - diluted
 
$
0.26
   
$
0.23
   
$
0.73
   
$
0.66
 
                                 
Weighted average number of common shares outstanding - basic
   
19,600,305
     
19,600,305
     
19,600,305
     
19,600,305
 
                                 
Weighted average number of common shares outstanding - diluted
   
21,824,325
     
21,824,325
     
21,824,325
     
21,824,325
 
 
The accompanying notes form an integral part of these consolidated financial statements
 
 
3

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Net income
 
$
5,609,156
   
$
5,075,820
   
$
16,005,197
   
$
14,317,169
 
Other comprehensive income/(loss)
                               
- foreign currency translation adjustments
   
(127,092
   
633,699
     
350,325
     
1,583,689
 
Comprehensive income
 
$
5,482,064
   
$
5,709,519
   
$
16,355,522
   
$
15,900,858
 

The accompanying notes form an integral part of these consolidated financial statements
 
 
4

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
 
   
Preferred Stock
   
Common Stock
   
Additional
Paid-In
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
 
                               
Balance as of
                             
December 31, 2011
   
444,804
   
$
57
     
19,600,305
   
$
3,578
   
$
24,283,222
 
Net income
   
-
     
-
     
-
     
-
     
-
 
Other comprehensive
                                       
income - foreign
                                       
currency translation
                                       
adjustments
   
-
     
-
     
-
     
-
     
-
 
                                         
Balance as of
                                       
September 30, 2012
   
444,804
   
$
57
     
19,600,305
   
$
3,578
   
$
24,283,222
 
 
The accompanying notes form an integral part of these consolidated financial statements
 
 
5

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(UNAUDITED)
 
 
Accumulated
         
 
Other
     
Total
 
 
Comprehensive
 
Retained Earnings
 
Shareholders’
 
 
Income
 
Restricted
 
Unrestricted
 
Equity
 
                         
Balance as of
                               
December 31, 2011
 
$
6,492,658
   
$
496,396
   
$
37,328,625
   
$
68,604,536
 
Net income
   
-
     
-
     
16,005,197
     
16,005,197
 
Other comprehensive
                               
income - foreign
                               
currency translation
                               
adjustments
   
350,325
     
-
     
-
     
350,325
 
                                 
Balance as of
                               
September 30, 2012
 
$
6,842,983
   
$
496,396
   
$
53,333,822
   
$
84,960,058
 
 
The accompanying notes form an integral part of these consolidated financial statements
 
 
6

 
 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
Nine Months Ended
 
   
September 30,
 
   
2012
   
2011
 
Cash flows from operating activities:
           
Net income
 
$
16,005,197
   
$
14,317,169
 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
Depreciation and amortization
   
1,047,465
     
968,021
 
Deferred income taxes
   
(453
   
71,515
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
(873,048
)
   
(4,636,449
)
Interest receivable
   
157,171
     
(61,648
)
Inventories
   
(230,512
)
   
(391,538
)
Advance to suppliers
   
3,852,007
     
(3,745,134
)
Other assets
   
(4,495
)
   
5,333
 
Accounts payable
   
690,404
     
1,519,773
 
Accrued expenses
   
(305,160
)
   
(580,371
)
Value added taxes payable
   
264,967
     
187,026
 
Other taxes payable
   
64,453
     
105,545
 
Income tax payable
   
655,406
     
586,673
 
Net cash provided by operating activities
   
21,323,402
 
   
8,345,915
 
                 
Cash flows from investing activities:
               
Purchase of property, equipment and improvement
   
(209,113
)
   
(194,338
)
Deposit for mining right acquisition
     (31,703,760 )        
Addition to note receivable
   
-
     
(13,870,865
)
Promissory note receivable from non related party
   
25,363,008
     
-
 
Net cash provided by (used in) investing activities
   
(6,549,865
)    
(14,065,203
)
                 
Cash flows from financing activities:
               
Principle payments on short-term debt
   
(22,509,670
)
   
-
 
Proceeds received from short-term debt
   
35,191,174
     
-
 
Advances from shareholders
   
-
     
770
 
Dividends paid to shareholders
   
-
     
(290,829
)
Decrease in restricted cash
   
550,000
     
1,417,203
 
Net cash provided by financing activities
   
13,231,504
     
1,127,144
 
                 
Effect of exchange rate changes on cash and cash equivalents
   
91,887
     
856,013
 
                 
Net increase in cash and cash equivalents
   
28,096,928
     
(3,736,131
)
                 
Cash and cash equivalents at the beginning of period
   
26,383,537
     
33,910,457
 
Cash and cash equivalents at the end of period
 
$
54,480,465
   
$
30,174,326
 
                 
Supplemental disclosure of cash flow information:
               
Income taxes paid
 
$
4,799,533
   
$
4,207,463
 
Interest paid
 
$
284,243
   
$
-
 
 
The accompanying notes form an integral part of these consolidated financial statements
 
 
7

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1)
Organization, Nature of Business and Basis of Presentation

Huixin Waste Water Solutions, Inc. (“the Company” or “Huixin”) was incorporated in the Cayman Islands on December 7, 2006. The Company was originally organized as a “blank check” shell company to investigate and acquire a target company or business desiring to be a publicly held corporation. Wealth Environmental Protection Group, Inc. (“WEP”) was incorporated under the laws of the British Virgin Islands on June 3, 2010 to serve as an investment holding company. On December 15, 2010, the Company (i) closed a share exchange transaction pursuant to which it became the 100% parent of WEP, and (ii) assumed the operations of WEP and its subsidiaries.
 
The share exchange transaction has been treated as a recapitalization of WEP, with Huixin emerging as the surviving legal entity and WEP is considered as the acquirer for accounting purpose.  Prior to the recapitalization, Huixin had essentially no assets or liabilities and issued approximately 96% of its outstanding shares to the shareholders of WEP and their designees in the recapitalization. The historical consolidated financial statements of WEP are retroactively presented as the financial statements of Huixin.   A summary of the Company subsidiaries is currently as follows:

   
Domicile and
           
   
Date of
 
Paid -In
 
Effective
   
Name and Location
 
Incorporation
 
Capital
 
Ownership
 
Activities
                 
Wealth Environmental Protection Group, Inc  (“WEP”)
 
British Virgin Islands
June 3, 2010
 
$
7,000
 
100% Owned
 
Holding Company
                   
Wealth Environmental Technology Holding Ltd.(“Wealth Technology”) Hong Kong
 
Hong Kong
June 18, 2010
 
$
1,299
 
100% Owned
 
Holding Company
                   
Jiangmen Huiyuan Environmental Protection Technology Consultancy Co.
(“Jiangmen Huiyuan”)
Jiangmen, Guandong Province
 
Peoples Republic Of China (“PRC”)
July 22, 2010
 
$
15,082
 
100% Owned - Wholly Foreign Owned Entity (“WFOE”)
 
Holding Company
                   
Jiangmen Wealth Water
Purifying Agent Co., Ltd (“Jiangmen Wealth Water”) 
Jiangmen, Guandong Province
 
PRC
April 25, 2003
 
$
4,049,060
 
100% Control  Through
Contractual Arrangements
 
Manufacturing of water
purifying agents
                   
Guizhou Yufeng Melt Co., Ltd. (“Guizhou Yufeng”)
Guizhou Provincre
 
PRC 
March 25, 2005
 
$
4,233,854
 
100% Control Through
Contractual Arrangements
 
Manufacturer of HAC Powder using bauxite and limestone from mines controlled under mining rights agreements
                   
Shanxi Wealth Aluminate
Materials Co., Ltd Shanxi Province
 
PRC
April 8, 2004
 
$
6,786,056
 
100% Control Through
Contractual Arrangements
 
Manufacturer of HAC Powder using bauxite
and limestone from mines controlled under mining rights agreements
 
 
8

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1)
Organization, Nature of Business and Basis of Presentation, continued

On September 29, 2010, Jiangmen Huiyuan entered into a series of contractual agreements with Jiangmen Wealth Water, and its shareholders, in which Jiangmen Huiyuan effectively assumed management of the business activities of Jiangmen Wealth Water and has the right to appoint all executives and senior management and the members of the board of directors of Jiangmen Wealth Water. The contractual arrangements are comprised of a series of agreements, including an Exclusive Business Cooperation Agreement, Exclusive Option Agreement, Equity Interest Pledge Agreement and Power of Attorney, through which Jiangmen Huiyuan has the right to provide exclusive complete business support and technical and consulting service to Jiangmen Wealth Water for an annual fee in the amount of Jiangmen Wealth Water’s yearly net profits after tax. Additionally, Jiangmen Wealth Water’s shareholders have pledged their rights, titles and equity interest in Jiangmen Wealth Water as security for Jiangmen Huiyuan to collect consulting and services fees provided to Jiangmen Wealth Water through an Equity Pledge Agreement. In order to further reinforce Jiangmen Huiyuan’s rights to control and operate Jiangmen Wealth Water, the shareholders of Jiangmen Wealth Water have granted Jiangmen Huiyuan the exclusive right and option to acquire all of their equity interests in Jiangmen Wealth Water through an Exclusive Option Agreement.
 
Jiangmen Wealth Water owns all of the issued and outstanding capital stock of Guizhou Yufeng, and Shanxi Wealth. During the years ended December 31, 2009 and 2008, Mr. Tan and his spouse, Ms. Hong Yu Du (“Ms. Du”) directly or through an affiliated company, had controlling equity interests in Jiangmen Wealth Water, Guizhou Yufeng and Shanxi Wealth.   In August and September 2010, through a restructuring process, Jiangmen Wealth Water paid $74,705 and $463,160 to acquire 100% equity interest of Guizhou Yufeng and 62% equity interest of Shanxi Wealth, respectively. On December 27, 2010 the Company acquired the remaining 38% equity interest of Shanxi Wealth owned by Mr. Tan through a declared dividend payable of $290,072 to Mr. Tan on January 3, 2011.  Mr. Tan and Ms. Du collectively owned 100% of Jiangmen Wealth Water and its subsidiaries after this restructuring.
 
Based on Jiangmen Huiyuan’s contractual relationship with Jiangmen Wealth, the Company has determined that a variable interest entity has been created and therefore Jiangmen Wealth is considered a consolidated subsidiary of the Company. Additionally, because all of the companies are currently under common control, the series of agreements and restructurings referred to above have been accounted for as a reorganization of the entities and the financial statements have been prepared as if the reorganization had occurred retroactively.  Accordingly these financial statements present the consolidated operating results, assets and liabilities of Wealth and its subsidiaries, which are collectively referred to as the “Company”.
 
The Company produces and sells water purifying agents and high-performance aluminate calcium (HAC) powder, the core ingredient of its water purifying agents in China.

The accompanying condensed consolidated balance sheet as of December 31, 2011, which has been derived from the audited consolidated financial statements and the accompanying unaudited condensed consolidated financial statements, has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations and the Company believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, these condensed consolidated financial statements reflect all adjustments which are of a normal recurring nature and which are necessary to present fairly the financial position of Huixin as of September 30, 2012 and the results of operations for the three-month and nine-month periods ended September 30, 2012 and September 30, 2011, and the cash flows for the nine-month periods ended September 30, 2012 and September 30, 2011. These condensed consolidated financial statements and related notes should be read in conjunction with the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2011. The results of operations for the three months and nine months ended September 30, 2012 are not necessarily indicative of the results which may be expected for the entire fiscal year.
 
 
9

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(2)
Summary of Significant Accounting Policies, continued

Reverse Stock Split

On December 15, 2011, the Board of Directors and the stockholders of the Company approved and implemented a reverse stock split in a ratio of 1 share to 1.42610718 shares of the Company’s common stock. Par value of the common stock has been changed to $0.00018254172 per share. Accordingly, all references to numbers of common shares and per-share data in the accompanying condensed consolidated financial statements and notes have been retroactively adjusted to reflect the effects of the reverse stock split.

Principles of Consolidation
 
These condensed financial statements present the consolidated accounts of WEP and its subsidiaries, Wealth Technology, Jiangmen Huiyan, and its variable interest entities, Jiangmen Wealth Water, Guizhou Yunfeng and Shanxi Wealth, which are collectively referred to as the “Company”. This presentation is based upon the retroactive treatment of series of agreements and restructurings of companies under common control as described in Note (1).
 
All inter-company transactions and balances have been eliminated in preparation of the condensed consolidated financial statements.
 
Use of Estimates
 
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expenses in the condensed consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s condensed consolidated financial statements include collectibility of accounts receivable, useful lives and impairment of property and equipment, mineral reserves available for mining production, total expected use of mineral reserves and value and realizability of intangible assets.  Actual results could differ from those estimates.

Segments
 
For the three months and nine months ended September 30, 2012 and 2011, the Company’s operations have been broken down into segment based on production facility, in the manner that management reviews operations on a regular basis. All our operations revolve around the production of water purification agents made to similar specifications. All of the Company’s segments have similar assets, customers and distribution methods, and their economic characteristics are similar with regard to their gross margin percentages.
 
Currency Reporting
 
The Company’s operations in the PRC use the local currency, Renminbi (“RMB”), as their functional currency, whereas amounts reported in the accompanying condensed consolidated financial statements and disclosures are stated in U.S. dollars, the reporting currency of the Company, unless stated otherwise. As such, the condensed consolidated balance sheets of the Company have been translated into U.S. dollars at the current rates as of September 30, 2012 and December 31, 2011 and the condensed consolidated statements of income have been translated into U.S. dollars at the weighted average rates during the periods the transactions were recognized.

The resulting translation gain adjustments are recorded as other comprehensive income in the condensed consolidated statements of comprehensive income and as a separate component of equity in the condensed consolidated balance sheets.
 
 
10

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(2)
Summary of Significant Accounting Policies, continued

Revenue Recognition
 
The Company’s main source of revenue is generated from sales of water purifying agents and high-performance calcium aluminates powder. The Company recognizes revenue when there is persuasive evidence of a sales arrangement, delivery and acceptance by the customer has occurred, the sales price is fixed or determinable, and collection is probable. Under the Company’s typical sales terms for both water purifying agents and HAC powder, the Company recognizes revenue when product is shipped from its production facilities because shipments are made FOB shipping point with the customer bearing all shipping costs and title and risk of loss transferring to the customer upon shipment. Sales terms for water purifying agents and HAC powder do not include customer acceptance provisions, the right of return (unless the product is proven to be defective) or other post-delivery obligations. The Company has not experienced any significant returns associated with defective product.
 
Value added taxes represent amounts collected on behalf of specific government agencies that require remittance of tax by specified dates. Value added taxes are collected at the time of sales and are detailed on invoices provided to customers. The Company accounts for value added taxes on a net basis. The Company recorded and paid sales related taxes based on a percentage of the value added taxes and reported the revenue net of the sales related taxes.
 
Major Customers
 
During the three months and nine months ended September 30, 2012 and 2011, there was no customer accounted for 10% or more of our net revenue.
 
Major Suppliers
 
During the three months and nine months ended September 30, 2012 and 2011, certain suppliers accounted for more than 10% of the Company’s total net purchases as follows, and none of the major suppliers are related parties to the Company.
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
2012
 
September 30,
2011
   
September 30,
2012
   
September 30,
2011
 
                         
Supplier 1
   
12
%
   
12
%
   
12
%
   
11
%
Supplier 2
   
18
%
   
17
   
11
%
   
17
%
Supplier 3
   
12
%
   
12
   
16
%
   
11
%
 
Value-Added Tax (“VAT”)
 
Enterprises or individuals, who sell commodities, engage in repair and maintenance or import or export goods in the PRC are subject to a value-added tax in accordance with the PRC laws. The value-added tax standard rate for sales made by the Company is 17% of the gross sales price and the Company records its revenue net of VAT. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on the sales of the finished products. When the Company purchases raw materials, the VAT incurred by the Company, and subject to credit, generally varies from 6% to 17% depending on the type of materials or services purchased. There is a significant difference in the VAT that the Company incurs on purchases and the amount the Company bills to customers for sales of HAC powder and water purifying agents due to the fact that the Company converts raw materials from their mined state to finished product and is responsible for the substantial portion of increased value in its products.
 
 
11

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(2)
Summary of Significant Accounting Policies, continued

Value-Added Tax (“VAT”), continued
 
Following is an analysis of VAT billed to the Company on purchases, VAT billed by the Company on sales and VAT remitted to PRC during the nine months ended  September 30, 2012 and 2011, with information related to the liability for uncollected or unremitted VAT at September 30, 2012 and December 31, 2011:
 
   
Nine Months
   
Nine Months
 
   
Ended
   
Ended
 
   
September 30, 2012
   
September 30, 2011
 
                 
VAT billed to customers for sales during the period
 
$
12,017,833
   
$
10,322,305
 
Less: VAT billed to the Company for purchases during the period
   
4,780,061
     
4,089,441
 
                 
Net VAT on transactions took place during the period
   
7,237,772
     
6,232,864
 
Amount remitted to the PRC
   
(6,970,630
)
   
(6,030,535
)
VAT payable at beginning of period
   
497,581
     
389,053
 
                 
VAT payable at period end
 
$
764,723
   
$
591,382
 
 
   
As of
   
As of
 
   
September 30,
   
December 31,
 
   
2012
   
2011
 
             
Liabilities for taxes collected but not remitted
 
$
291,497
   
$
152,811
 
Liabilities for taxes billed to customers but not collected
               
  from the customers or remitted to PRC
   
473,226
     
344,770
 
                 
VAT payable at period end
 
$
764,723
   
$
497,581
 
 
New Accounting Pronouncements
 
In December 2011, the FASB issued ASU No. 2011-11, Topic 210 - Balance Sheet: Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU 2011-11 will be effective for fiscal years beginning on or after January 1, 2013, with retrospective application for all comparable periods presented. The Company does not expect the adoption of this guidance to have a material effect on the Company’s consolidated financial statements.

In July 2012, the FASB issued Accounting Standards Update ASU 2012-02, the amendments to ASC 350, Intangibles—Goodwill and Other: Testing Indefinite-Lived Intangible Assets for Impairment ("ASU 2012-02"). The amendments apply to all entities, both public and nonpublic, that have indefinite-lived intangible assets, other than goodwill, reported in their financial statements. In accordance with the amendments an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Subtopic 350-30. An entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, and early adoption is permitted. The Company will apply these amendments for reporting periods beginning after December 31, 2012. The Company does not expect the adoption of the amendments to have a material impact on the Company's financial statements.  
 
 
12

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
(3)
Note Receivable
 
On August 29, 2011, the Company entered into a secured note receivable agreement with a non-related party in the amount of $14,087,748 (RMB90,000,000) which was increased to approximately $25,187,727 (RMB160,000,000) in December 2011. The note carried an annual interest rate of 9%. This note originally expired on November 28, 2011 but was extended to March 31, 2012, and was secured by the debtor’s land use right, certain tangible assets and all the business operation rights. Interest receivable related to this note amounted to $156,085 as of December 31, 2011. As of March 28, 2012, the note receivable and interest receivable were fully repaid.
 
(4)
Earnings Per Share

Basic net earnings per share is computed using the weighted-average number of common shares outstanding. The dilutive effect of potential common shares outstanding is included in diluted net earnings per share. The computations of basic net earnings per share and diluted net earnings per share for three months and nine months ended September 30, 2012 and 2011 are as follows:
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
                         
Net income attributable to common shareholders - Basic
 
$
5,509,075
   
$
4,975,739
   
$
15,704,954
   
$
14,016,926
 
                                 
Add: cumulative dividends attributable to
                               
6% convertible preferred stock
   
100,081
     
100,081
     
300,243
     
300,243
 
                                 
Net income attributable to
                               
common shareholders - Diluted
 
$
5,609,156
   
$
5,075,820
   
$
16,005,197
   
$
14,317,169
 
                                 
Weighted average number of common shares
   
19,600,305 
     
19,600,305 
     
19,600,305 
     
19,600,305 
 
outstanding - Basic
                               
                                 
Dilutive effect of preferred stock conversion
   
2,224,020
     
2,224,020
     
2,224,020
     
2,224,020
 
                                 
Weighted average number of common shares
                               
outstanding - Diluted
   
21,824,325
     
21,824,325
     
21,824,325
     
21,824,325
 
                                 
Earnings per share:
                               
Basic
 
$
0.28
   
$
0.25
   
$
0.80
   
$
0.72
 
                                 
Diluted
 
$
0.26
   
$
0.23
   
$
0.73
   
$
0.66
 
 
(5)
Restricted Cash

The Company has certain restricted cash as a result of the execution of the following agreements:

Holdback Escrow Agreement
 
In connection with the Private Placement took place in December 2010, the Company entered into a Holdback Escrow Agreement with Anslow & Jaclin, LLP (“A&J”), the escrow agent, and Access America Investments, LLC (“AAI”), as investor representative (the “Holdback Escrow Agreement”), pursuant to which $2,167,203 was deposited with the escrow agent to be distributed upon the satisfaction of certain covenants set forth in the Subscription Agreement. Pursuant to the Holdback Escrow Agreement, $1,500,000 shall be released to the Company upon the hiring of a chief financial officer on terms acceptable to AAI (the “Chief Financial Officer Holdback”) and $667,203 shall be released to us upon appointment of the required independent directors to our board of directors. In March 2011, pursuant to the Holdback Escrow Agreement, $667,203 was released to us upon appointment of the required independent directors to our board of directors.
 
 
13

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
(5)
Restricted Cash, continued

On May 20, 2011, the Holdback Escrow Agreement was amended to provide that as soon as practicable following the Offering, the Company shall employ a chief financial officer meeting certain requirements and to permit the “Lead Investor” (as defined in the Subscription Amendment) to authorize the escrow agent appointed pursuant to the Holdback Escrow Agreement to disburse a portion of the Chief Financial Officer Holdback, such portion not to exceed $750,000 in the aggregate, to the Company (a “Good Faith Disbursement”). Pursuant to Holdback Escrow Agreement, as amended on May 20, 2011, $750,000 was released to the Company as Good Faith Disbursement. On December 1, 2011, the Holdback Escrow Agreement was further amended to provide for a series of disbursements from the Chief Financial Officer Holdback to the Company of $100,000 commencing on December 1, 2011 and continuing on the first day of each successive month thereafter until the remaining balance of the Chief Financial Officer Holdback is disbursed to the Company (the “Monthly Disbursements”). As of September 30, 2012 and December 31, 2011, $0 and $550,000, respectively, remained unreleased.
 
Investor Relations Escrow Agreement
 
The Company entered into an investor relations escrow agreement with Anslow & Jaclin, LLP, the escrow agent, and Access America Investments, LLC, as representative of the investors, pursuant to which $120,000 was deposited with the escrow agent to be distributed in incremental amounts to pay our investor relations firm, the choice of which is subject to the approval of Access America Investments, LLC, which approval cannot be unreasonably withheld. As of September 30, 2012 and December 31, 2011, $120,000 remained unreleased as the Company has not hired any investor relations firm.
 
 (6)
Inventories

A summary of inventories is as follows:

   
September 30,
   
December 31,
 
2012
2011
             
Raw Materials
 
$
847,060
   
$
674,114
 
Work in progress
   
49,698
     
-
 
Finished goods
   
295,919
     
283,395
 
                 
   
$
1,192,677
   
$
957,509
 

Inventories are stated at the lower of cost or market. The weighted average cost method is used to account for the Company inventories. 
 
(7)
Property, Plant and Equipment and Land and Mining Rights

A summary of property, plant and equipment and land and mining rights is as follows:

   
September 30,
   
December 31,
 
2012
2011
             
Leasehold improvement
 
$
3,338,534
   
$
3,321,044
 
Production equipment
   
6,757,205
     
6,715,532
 
Furniture and fixtures
   
449,401
     
441,857
 
Automobiles
   
512,225
     
313,333
 
Land use rights
   
2,288,336
     
2,276,347
 
Mining rights
   
9,020,386
     
8,973,128
 
                 
     
22,366,087
     
22,041,241
 
Less: Accumulated depreciation
   
8,498,458
     
7,413,708
 
                 
   
$
13,867,629
   
$
14,627,533
 
 
 
14

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(7)
Property, Plant and Equipment and Land and Mining Rights, continued

Depreciation and amortization expense was $370,586 and $339,726 for the three months ended September 30, 2012 and 2011, respectively, and $1,047,465 and $968,021 for the nine months ended September 30, 2012 and 2011, respectively.  A breakdown of depreciation and amortization expenses is summarized as follows:
 
      Three Months Ended September 30,       Nine Months Ended September 30,  
   
2012
   
2011
   
2012
   
2011
 
                         
Depreciation of plant, equipment and improvements
 
$
185,403
   
$
176,866
   
$
557,403
   
$
520,196
 
Amortization of land use rights
   
12,612
     
12,448
     
37,907
     
36,856
 
Amortization of mining rights
   
172,571
     
150,412
     
452,155
     
410,969
 
                                 
Total
 
$
370,586
   
$
339,726
   
$
1,047,465
   
$
968,021
 
 
As of September 30, 2012 and December 31, 2011, the Company holds mining rights to two limestone mines and two bauxite mines from which they are allowed to produce:

300,000 tons of limestone, from which the calcium needed for production of its products is derived;
350,000 tons of bauxite, from which the aluminum for production of its products is derived.

During the three months and nine months ended September 30, 2012 and 2011, the Company had production from its limestone and bauxite mines as follows (in tons):

    Three Months Ended September 30,     Nine Months Ended September 30,  
   
2012
   
2011
   
2012
   
2011
 
                         
Limestone
   
24,211
     
27,461
     
74,598
     
76,428
 
Bauxite
   
79,504
     
66,389
     
200,981
     
183,788
 

(8)          Other long-term asset

On August 28, 2012, the Company entered into a purchase agreement with a non-related party for an Aluminum Bauxite mining right located in Guizhou Province, PRC in the total amount of approximately $83 million (RMB520,000,000). In accordance with PRC regulations on natural resources, the transaction is subject to the Ministry of Land and Resources of the PRC for final approval. Pursuant to the purchase agreement, the Company paid $31,650,477 (RMB200,000,000) security deposit for the transaction, and is secured by the seller’s Mining Right Certificate. The security deposit is fully refundable with applicable interest should the transaction be rejected by the Ministry of Land and Resources of the PRC.

(9)
Short-term debt

The Company's Short-term debt consisted of the following:
 
   
September 30,
   
December 31,
 
2012
2011
             
Revolving line-of-credit
 
$
-
   
$
-
 
Short term note (1)
   
-
     
-
 
Short term note (2)
   
12,660,191
     
-
 
                 
Total
 
$
12,660,191
   
$
 

In February 2012, the Company entered into a $4.76 million (RMB30,000,000) revolving credit agreement with Industrial and Commercial Bank of China Limited (“ICBC”) with one year maturity, which is personally guaranteed by Mr. Tan and Ms. Du, contains no maintenance covenants. The interest rate under the revolving credit agreement is based on the base rate, the interest rate set by the People’s Bank of China, plus 30% of the base rate. As of September 30, 2012, the available borrowing base under revolving line-of-credit was $4.76 million, with $0 drawn as of that date, leaving $4.76 million (RMB30,000,000) available for general operations use under this revolving credit agreement. Interest under the line-of-credit is paid monthly at the ended of each month. As of September 30, 2012, all interest was fully paid.
 
In June 2012, the Company entered into a $19 million (RMB120,000,000) short-term note agreement with Industrial Bank Co., Limited (“IB”) with a one year maturity, is personally guaranteed by Mr. Tan and Ms. Du, and contains no maintenance covenants. The interest rate under the short-term note agreement is based on the base rate, the interest rate set by the People’s Bank of China, plus 10% of the base rate. Interest under the short term note is paid monthly at the ended of each month. During the period ended September 30, 2012, the principle and interest of the short term were fully paid.

In August 2012, the Company entered into a $12.66 million (RMB80,000,000) short-term note agreement with Industrial Bank Co., Limited (“IB”) with a one year maturity, is personally guaranteed by Mr. Tan and Ms. Du, and contains no maintenance covenants. The interest rate under the short-term note agreement is based on the base rate, the interest rate set by the People’s Bank of China (6.3% at September 30, 2012). Interest under the short term note is paid monthly at the ended of each month. As of September 30, 2012, all interest was fully paid.
 
 
15

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(10)
Income Taxes
 
The Company has not recorded a provision for U.S. federal income tax for the three months and nine months ended September 30, 2012 and 2011 because substantially all of the Company’s operations are conducted in the PRC.
 
On March 16, 2007, the National People’s Congress of China approved the new Corporate Income Tax Law of the PRC (New CIT Law), which is effective from January 1, 2008. Under the New CIT Law, the statutory corporate income tax rate applicable to most companies, including the Company is 25%. In accordance with the New CIT Law, enterprises established under the laws of foreign countries or regions and whose “place of effective management” is located within the PRC territory are considered PRC resident enterprises and subject to the PRC income tax at the rate of 25% on worldwide income. The definition of “place of effective management” refers to an establishment that exercises, in substance, overall management and control over the production and business, personnel, accounting, properties, etc. of an enterprise. As of September 30, 2012, no detailed interpretation or guidance has been issued to define “place of effective management”. Furthermore, as of September 30, 2012, the administrative practice associated with interpreting and applying the concept of “place of effective management” is unclear. However, the Company has analyzed the applicability of this law, as of and for the years ended December 31, 2011 and 2010, and the Company has accrued and paid PRC tax on such basis. The Company will continue to monitor changes in the interpretation or guidance of this law.

The New CIT Law also imposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside China. Such dividends were exempted from PRC tax under the previous income tax law and regulations.
 
The tax authority of the PRC Government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises had completed their relevant tax filings, hence the Company’s tax filings may not be finalized. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s tax filings which may lead to additional tax liabilities.
 
The Company conducts substantially all of its business in PRC and it is subject to PRC income taxes at a 25% standard tax rate in 2012 and 2011.  Following is a reconciliation of the Company’s income tax provision of $1,901,646 and $1,696,209 for the three months ended September 30, 2012 and 2011, respectively, and $5,454,958 and $4,865,974 for the nine months ended September 30, 2012 and 2011, respectively,  to the expected US statutory rate of 34%:

   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2012
   
2011
   
2012
   
2011
 
                                 
Computed tax at the U.S. federal statutory rate of 34%
 
$
2,553,673
   
$
2,302,490
   
$
7,296,453
   
$
6,522,268
 
                                 
Tax rate difference between the US and PRC on foreign earnings
   
(675,972
)
   
(609,483
)
   
(1,931,414
)
   
(1,726,483
)
Change in valuation allowance
   
32,563
     
26,221
     
122,215
     
116,416
 
Other
   
(8,618
)
   
(23,019
)
   
(32,296
)
   
(46,227
)
                                 
   
$
1,901,646
   
$
1,696,209
   
$
5,454,958
   
$
4,865,974
 
 
 
16

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(10)
Income Taxes, continued

At September 30, 2012 and December 31, 2011, differences between the basis of assets and liabilities reported in the accompanying financial statements and those recognized for tax reporting purposes in the PRC, and the related deferred taxes were as follows:

   
As of
   
As of
 
   
September 30,
   
December 31,
 
   
2012
   
2011
 
Deferred tax assets:
           
Net operating losses
 
$
1,187,946
   
$
1,065,731
 
Liability for social insurance premiums and provident housing funds
   
75,000
     
75,000
 
    Total deferred tax assets
   
1,262,946
     
1,140,731
 
                 
Deferred tax liabilities:
               
Difference between book and tax amortization on mining rights
   
(387,446
)
   
(386,339
)
    Total deferred tax liabilities
   
(387,446
)
   
(386,339
)
                 
Net deferred tax assets before valuation allowance
   
875,500
     
754,392
 
Valuation allowance
   
(1,187,946
)
   
(1,065,731
)
Net deferred tax liabilities
 
$
(312,446
)
 
$
(311,339
)

The Company accounts for uncertainty in income taxes in accordance with applicable accounting standards, which prescribe a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These accounting standards also provide guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
 
Based on the Company’s evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements.

(11)
Shareholders’ Equity

General Reserve Fund
 
In accordance with the PRC Regulations on Enterprises with Foreign Investment, an enterprise established in the PRC with foreign investment is required to provide for certain statutory reserves, namely (i) General Reserve Fund, (ii) Enterprise Expansion Fund and (iii) Staff Welfare and Bonus Fund, which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A WOFE is required to allocate at least 10% of its annual after-tax profit to the General Reserve Fund until the balance of such fund has reached 50% of its respective registered capital.  A non- wholly-owned foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors. Appropriations to the Enterprise Expansion Fund and Staff Welfare and Bonus Fund are at the discretion of the board of directors for all foreign invested enterprises. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. As a result, $496,396 has been appropriated to the accumulated statutory reserves (included in the retained earnings) by the Company as of September 30, 2012 and December 31, 2011 and the balance represents a fully funded General Reserve Fund:
 
 
17

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(11)
Shareholders’ Equity

Following is an analysis of the general fund by subsidiary as of September 30, 2012 and December 31, 2011:

   
Registered
   
General
 
   
Capital
   
Reserve Fund
 
             
Jiangmen Huiyuan
 
$
-
   
$
-
 
Jiangmen Wealth Water
   
61,981
     
38,801
 
Guizhou Yufeng
   
61,981
     
39,211
 
Shangxi Wealth
   
619,806
     
418,384
 
                 
   
$
743,768
   
$
496,396
 

(12)
Related Party Balances and Transactions

During the nine months ended September 30, 2011, the Company declared and paid a dividend in the amount of $290,072 to Mr. Ming Zhou Tan (“Mr. Tan”) to acquire his remaining 38% equity interest in Shanxi Wealth. As of September 30, 2012 and December 31, 2011, the amount due to shareholders totaled $15,266.

During the nine months ended September 30, 2011, the Company entered into a $4.76 million (RMB30,000,000) revolving credit agreement with Industrial and Commercial Bank of China Limited (“ICBC”); a $19 million (RMB120,000,000) short-term note agreement with Industrial Bank Co., Limited (“IB”), and a $12.66 million (RMB80,000,000) short-term note agreement with Industrial Bank Co., Limited (“IB”), all these debts are personally guaranteed by Mr. Tan and Ms. Du, and contains no maintenance covenants.
 
 
18

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(13)
Segment Information
 
The Company follows FASB ASC 280-Segment Reporting, which requires that companies disclose segment data based on how management makes decision about allocating resources to segments and evaluating their performance. The Company has three operating segments identified by manufacturing facility and each segment is operated in a separate subsidiary. The Company primarily evaluates performance based on income before income taxes and excluding non-recurring items. The operations and products produced by the Company’s various segments are as follows: 

Jiangmen Wealth Water produces water purification agents for specific industrial uses such as the  treatment of waste water from paper mills, decolorization agent to treat waste water that contains active dyes, acid dyes and direct dyes produced in the textile and printing industry, and other industry specific water purification applications. The Company uses HAC powder produced by the Guizhou Yefeng segment in the production of its water purification agents.

Guizhou Yefeng produces HAC powder from calcium and aluminum derived from its limestone and bauxite mines. The HAC powder is used by Jiangmen Wealth Water in the production of its water purification agents and is also sold to outside customers for waste water treatment.

Shanxi Wealth produces HAC powder from calcium and aluminum derived from its limestone and bauxite mines. The HAC powder is sold to outside customers for waste water treatment.

Other represents the cost of corporate activities and eliminations

The segment data presented below was prepared on the same basis as the Company’s consolidated financial statements:
 
For the three months ended September 30, 2012
       
                                     
   
Jiangmen
                               
   
Wealth
   
Guizhou
   
Shanxi
                   
   
Water
   
Yefeng
   
Wealth
   
Corporate
   
Eliminations
   
Total
 
                                     
Net revenue
 
$
11,510,345
   
$
4,596,526
   
$
9,024,816
   
$
-
   
$
(2,724,358
)
 
$
22,407,329
 
Cost of revenue
   
7,307,167
     
2,459,220
     
5,266,179
     
-
     
(2,724,358
)
   
12,308,208
 
                                                 
Gross profit
   
4,203,178
     
2,137,306
     
3,758,637
     
-
     
-
     
10,099,121
 
                                                 
Selling and marketing
   
331,546
     
85,957
     
380,171
     
-
     
-
     
797,674
 
General and administrative
   
734,084
     
159,289
     
318,260
     
279,309
     
-
     
1,490,942
 
Research and development
   
142,394
     
8,782
     
-
     
-
     
-
     
151,176
 
                                                 
Income from operations
 
$
2,995,154
   
$
1,883,278
   
$
3,060,206
   
$
(279,309
)
 
$
-
   
$
7,659,329
 
 
 
19

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(13)
Segment Information, continued

For the three months ended September 30, 2011
       
                                     
   
Jiangmen
   
Guizhou
   
Shanxi
                   
   
Wealth Water
   
Yefeng
   
Wealth
   
Corporate
   
Eliminations
   
Total
 
                                     
Net revenue
 
$
10,581,290
   
$
3,731,506
   
$
7,016,284
   
$
-
   
$
(1,994,027
)
 
$
19,335,053
 
Cost of revenue
   
6,223,213
     
2,060,388
     
4,470,020
     
-
     
(1,994,027
)
   
10,759,594
 
                                                 
Gross profit
   
4,358,077
     
1,671,118
     
2,546,264
     
-
     
-
     
8,575,459
 
                                                 
Selling and marketing
   
306,085
     
73,388
     
189,100
     
-
     
-
     
568,573
 
General and administrative
   
536,415
     
157,407
     
282,547
     
208,578
     
-
     
1,184,947
 
Research and development
   
140,543
     
8,648
     
-
     
-
     
-
     
149,191
 
                                                 
Income from operations
 
$
3,375,034
   
$
1,431,675
   
$
2,074,617
   
$
(208,578
)
 
$
-
   
$
6,672,748
 
 
For the nine months ended September 30, 2012
                         
                                     
   
Jiangmen
   
Guizhou
   
Shanxi
                   
   
Wealth Water
   
Yefeng
   
Wealth
   
Corporate
   
Eliminations
   
Total
 
                                     
Net revenue
 
$
32,700,226
   
$
12,667,891
   
$
23,460,362
   
$
-
   
$
(7,529,939
)
 
$
61,298,540
 
Cost of revenue
   
20,791,108
     
6,782,660
     
13,702,699
     
-
     
(7,529,939
)
   
33,746,528
 
                                                 
Gross profit
   
11,909,118
     
5,885,231
     
9,757,663
     
-
     
  -
     
27,552,012
 
                                                 
Selling and marketing
   
918,796
     
240,411
     
1,059,061
     
-
     
  -
     
2,218,268
 
General and administrative
   
1,665,657
     
463,650
     
921,164
     
776,176
     
  -
     
3,826,647
 
Research and development
   
443,853
     
26,869
     
-
     
-
     
  -
     
470,722
 
                                                 
Income from operations
 
$
8,880,812
   
$
5,154,301
   
$
7,777,438
   
$
(776,176
)
 
$
-
   
$
21,036,375
 
 
 
20

 
 
HUIXIN WASTE WATER SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(13)
Segment Information, continued
 
For the nine months ended September 30, 2011
                                 
                                     
   
Jiangmen
                               
   
Wealth
   
Guizhou
   
Shanxi
                   
   
Water
   
Yefeng
   
Wealth
   
Corporate
   
Eliminations
   
Total