The
accompanying unaudited combined and consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and the new scaled disclosure requirements in Article
8 of Regulation S-K of the SEC. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for annual financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. The accounts of
the Company and all of its subsidiaries are included in the combined and
consolidated financial statements. All significant intercompany accounts and
transactions have been eliminated in consolidation. The consolidated operating
results for the nine months ended September 30, 2010 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2010. For further information, refer to the audited combined and consolidated
financial statements and footnotes thereto included in the Company's Form 10-K
for the year ended December 31, 2009.
1. Nature of
operations
The
accompanying unaudited combined and consolidated financial statement are those
of China Industrial Waste Management, Inc., a Nevada corporation (the “Company”)
incorporated on November 12, 2003, its wholly owned subsidiary, Favour Group
Ltd., a British Virgin Islands corporation (“Favour”), along with its indirect
wholly and majority owned subsidiaries:
•
|
Full
Treasure Investments Ltd. (“Full
Treasure”)
|
•
|
Dalian
Dongtai Industrial Waste Treatment Co., Ltd. (“Dalian
Dongtai”)
|
•
|
Dalian
Dongtai Water Recycling Co., Ltd. (“Dongtai
Water”)
|
•
|
Dalian
Dongtai Organic Waste Treatment Co., Ltd. (“Dongtai
Organic”)
|
•
|
Dalian
Zhuorui Resource Recycling Co., Ltd.
(“Zhuorui”)
|
•
|
Dalian
Lipp Environmental Energy Engineering & Technology Co., Ltd. (“Dalian
Lipp”)
|
•
|
Yingkou
Dongtai Industrial Waste Treatment Co., Ltd. (“Yingkou
Dongtai”)
|
•
|
Hunan
Hanyang Environmental Protection Science & Technology Co., Ltd.
(“Hunan Hanyang”)
|
•
|
Sino-Norway
Dalian Energy Efficiency Center Co., Ltd. (“Sino-Norway
EEC”)
|
Dalian
Dongtai was incorporated on January 9, 1991 in Dalian City, Liaoning Province,
the People’s Republic of China (“PRC”), and now is engaged in the collection,
treatment, disposal, and recycling of industrial wastes, and sales of recycled
products, principally in Dalian and surrounding areas in Liaoning
Province. The Company provides waste disposal solutions to its more than
770 customers from facilities located in Dalian Development Area. 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
|
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 AND 2009
Dongtai
Water, which was incorporated in July 2006, is a build-operate-transfer (“BOT”)
project, with an operating period of 20 years, established to process municipal
sewage generated by Dalian City. Phase I of Dongtai Water, whose designed
production capacity is 30,000 tons per day, commenced normal production in June
2008.
Dongtai
Organic was incorporated in March 2007 as a joint venture, in which Dalian
Dongtai initially held an equity interest of 49%. In December 2009, Dalian
Dongtai acquired 3% equity interest in Dongtai Organic, thereby increasing its
ownership of Dongtai Organic to 52%. Dongtai Organic is the first sludge
treatment plant in China, with a designed production capacity of 600 tons/day,
which adopts anaerobic fermentation technology.
Zhuorui
was incorporated in April 2006 and is engaged in plasma arc melting, separation
and purification of waste catalysts that generated during oil refinery process,
treatment of industrial wastes and comprehensive utilization of waste catalysts
or similar material.
Dalian
Lipp is a Sino-German joint venture established in December 2007. Dalian Lipp
designs, manufactures and installs environmental protection equipment and
renewable energy equipment and provides related technical services. The project
is based on the Lipp GmbH tank building technique which is dedicated to
generating energy by organic waste anaerobic fermentation, industrial effluent
treatment and municipal sewage plant.
Yingkou
Dongtai, which operates in the Coastal Industrial Base (the “Base”) of Yingkou
City, Liaoning Province, was founded in May 2009. Yingkou Dongtai is engaged in
the recycling and disposal of industrial waste, and development and production
of recycling products. Yingkou Dongtai intends to build and complete waste
treatment facilities gradually in line with the development of the
Base.
In
October 2009, Dalian Dongtai acquired 65% equity interest in Hunan Hanyang.
Hunan Hanyang was established in Hunan Province in 2004 and is engaged in the
business of treatment and comprehensive utilization of industrial waste. Hunan
Hanyang owns a franchise right (BOT) to construct and operate the Hazardous
Waste Treatment Center of Changsha City, Hunan Province for 25 years upon
completion of construction.
Sino-Norway
EEC was incorporated as a joint venture in November 2009. Sino-Norway EEC is
engaged in the business of energy efficiency audit and consultation, and is
sponsored under the Energy Efficiency Planning Program initiated by Chinese and
Norwegian governments.
2. Basis of
presentation
The
accompanying unaudited combined and consolidated financial statement include the
accounts of the parent entity, its direct wholly owned subsidiary, Favour, along
with its indirect wholly owned subsidiary, Full Treasure, its 90% indirect owned
subsidiary, Dalian Dongtai, its 80% indirect owned subsidiary, Dongtai Water,
its 52% indirect owned subsidiary, Dongtai Organic, its 70% indirect owned
subsidiary, Zhuorui, its 75% indirect owned subsidiary, Dalian Lipp, its 100%
indirect owned subsidiary, Yingkou Dongtai, its 65% indirect owned subsidiary,
Hunan Hanyang, and its 86% indirect owned subsidiary, Sino-Norway
EEC.
In
December 2009, Dalian Dongtai acquired 3% additional equity interest in Dongtai
Organic, thereby increasing its ownership of Dongtai Organic to 52%. As a result
of equity exchange between entities under common control, the financial
statements and financial information presented for prior years during which the
entities were under common control, have been retrospectively adjusted to
furnish comparative information, adjusted financial statements and financial
summaries also include
the combined
revenues, expenses and cash flows of Dongtai Organic. All material inter-company
accounts and transactions have been eliminated in the
consolidation.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 AND 2009
The
accompanying financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America (“US GAAP”). This
basis differs from that used in the statutory accounts of the Company, which
were prepared in accordance with the accounting principles and relevant
financial regulations applicable to enterprises in PRC. All necessary
adjustments have been made to present the financial statements in accordance
with US GAAP.
3. Summary of significant
accounting policies
Use of
estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Foreign currency
translation
As of
September 30, 2010 and 2009, the accounts of the Company were maintained, and
the unaudited combined and consolidated financial statements were expressed in
Chinese Yuan Renminbi (“RMB”). Such unaudited combined and consolidated
financial statements were translated into U.S. dollars (“USD”) in accordance
with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards
Codification (“ASC”) Topic 830 Foreign Currency Matters with RMB as the
functional currency. 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 ASC Topic 220 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 ASC Topic 210-10-45-4 Classification of Current Assets, cash
which is restricted as to withdrawal is considered a non-current asset. As of
September 30, 2010 and December 31, 2009, restricted cash consists of government
subsides of $3,393,503 and $96,707, which is to be used exclusively on 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.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 AND 2009
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.
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 an allowance is made for writing down the inventories to their
market value, if lower.
Property, plant and
equipment
Property,
plant and equipment (“PP&E”) are stated at cost, less accumulated
depreciation and impairment. Expenditures for maintenance and repairs, which are
not considered improvements and do not extend the useful life of PP&E, are
expensed as incurred; additions, renewals and betterments are capitalized. When
PP&E are retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the respective accounts, and any gain or loss is
included in the statement of operations.
Depreciation
is provided to recognize the cost of PP&E in the results of operations. The
Company calculates depreciation using the straight-line method with estimated
useful life as follows:
|
|
Useful
Life
|
Buildings
|
|
20
Years
|
Machinery
|
|
10-14
Years
|
Vehicles
|
|
4
Years
|
Office
equipment
|
|
3-5
Years
|
Construction
in progress consists of construction expenditure, equipment procurement,
capitalized interest expense, relevant miscellaneous expenditures, and other
costs.
As of
September 30, 2010, construction in progress is comprised of three principal
components. The first component is the Centralized Hazardous Waste Treatment
Center of Dalian City (the “Expansion Project”), which is located in Dagu Hill,
Dalian Development Area. The Expansion Project consists of an incineration
system that includes an incinerator, its supporting facilities, and warehouses,
work plants and office buildings, etc. The second component is the production
equipments of Zhuorui, which are still in testing phase, including the plasma
furnace, flue gas cleansing system, dust trapper, etc. The third component is
the Hazardous Waste Treatment Center of Changsha City, Hunan Province, which is
in the phase of preparation for the commencement of construction.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 AND 2009
Landfills
Various
costs that we incur to make a landfill ready to accept waste are capitalized.
These costs generally include expenditures for land, permitting,
excavation, liner material and installation and other capital infrastructure
costs. The cost basis of our landfill assets also includes estimates of future
costs associated with landfill final capping, closure and post-closure
activities in accordance with ASC Topic 410 Asset Retirement and Environmental
Obligations. 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 Combined and Consolidated Statements of
Operations and Comprehensive Income.
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.
Long-term equity
investment
As of
September 30, 2010 and December 31, 2009, long-term investment is comprised of
investment in Xiangtan Luyi Dongtai Industrial Waste Treatment Co., Ltd.
(“Xiangtan Dongtai”).
|
|
September
30,
2010
|
|
|
December
31,
2009
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Xiangtan
Dongtai
|
|
$
|
149,466
|
|
|
$
|
87,900
|
|
Xiangtan
Dongtai, located in Xiangtan City, Hunan Province, was established on August 5,
2009, and primarily engaged in treatment and disposal of industrial waste,
development and sales of recycled products. As of September 30, 2010, Dalian
Dongtai owns a 12.5% equity interest in Xiangtan Dongtai, therefore, the Company
applies the cost method to account for its investment.
Impairment of long-lived
assets
In
accordance with ASC Topic 360 “Accounting for the Impairment or Disposal of Long
Lived Assets”, property, plant, and equipment 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 September 30,
2010 and December 31, 2009, respectively.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 AND 2009
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. The following table
summarize the material terms of the land use rights:
Effective
Date
|
|
|
Expiration
Date
|
|
|
Area
(Square
Meter)
|
|
Address
|
|
Status
|
|
01-01-2003
|
|
|
|
01-01-2053
|
|
|
|
8,433
|
|
No.1,
Huaihe West Road, Dalian Development Area
|
|
Mortgaged
|
|
01-01-2003
|
|
|
|
01-01-2053
|
|
|
|
6,784
|
|
No.
100, Tieshan West Road, Dalian Development Area
|
|
Mortgaged
|
|
04-14-2003
|
|
|
|
04-13-2053
|
|
|
|
1,841
|
|
No.1-1,
Huaihe West Third Road, Dalian Development Area
|
|
Mortgaged
|
|
07-28-2003
|
|
|
|
07-27-2053
|
|
|
|
61,535
|
|
No.
85, Dagu Hill, Dalian Development Area
|
|
Mortgaged
|
|
06-06-2007
|
|
|
|
06-06-2057
|
|
|
|
56,397
|
|
Dalian
Huayuankou Economic Zone
|
|
Mortgaged
|
|
03-24-2010
|
|
|
|
12-23-2056
|
|
|
|
25,000
|
|
Yingkou
Coastal Industrial Base
|
|
Unencumbered
|
|
-
|
|
|
|
-
|
|
|
|
10,500
|
|
Haiqing
Island, Dalian Development Area
|
|
Unencumbered
|
As of
September 30, 2010, net land use rights was $2,007,118, of which $1,746,652 has
been pledged as collaterals for the short-term loans from Shanghai Pudong
Development Bank.
Noncontrolling interest in
unaudited combined and consolidated financial statement
The
Company establishes accounting and reporting standards for the noncontrolling
(minority) interest in a subsidiary and for the deconsolidation of a
subsidiary in accordance with ASC Topic 805 Business Combinations.
Noncontrolling interest represents the minority owners’10% equity interest in
Dalian Dongtai, 20% equity interest in Dongtai Water, 48% equity interest in
Dongtai Organic, 30% equity interest in Zhuorui, 25% equity interest in Dalian
Lipp, 35% equity interest in Hunan Hanyang, and 14% equity interest in
Sino-Norway EEC.
Revenue
recognition
The
Company recognizes revenues in accordance with the guidance in the Securities
and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104.
Revenue is recognized when persuasive evidence of an arrangement exists, when
the selling price is fixed or determinable, when delivery occurs and when
collection is probable.
Revenues
are generated from the fees charged for waste collection, transfer, treatment,
disposal and recycling services and the sale of recycled commodities. The fees
charged for services are generally defined in service agreements and vary based
on contract specific terms such as frequency of service, weight, volume and the
general market factors influencing industry’s rates. Recycled commodities are
considered delivered at the point when the customers take ownership and assume
risk of loss of the commodities.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 AND 2009
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 September 30, 2010 and December 31, 2009, deferred sales amounted to
$300,565 and $958,930, respectively.
The AICPA
Issues Paper recommends that governmental grants be accounted for as
follows:
i)
|
Grants
related to revenue, such as certain export subsidies and price control
subsidies, should be recognized in the period of the related
events.
|
ii)
|
Grants
to reimburse current expenditures, such as research and development costs,
wages, training costs and transportation costs, should be treated as a
reduction of current or future related expense, depending on when the
related expense is recognized.
|
iii)
|
Grants
related to developing property, such as timberlands, or mineral reserves,
should be recognized over the useful lives of the
assets.
|
Government
grants are received at a discretionary amount as determined by the local or
central PRC government. The Company follows the guideline of the AICPA Issues
Paper in accounting for grants as revenues. In general, government grants for
revenues and/or expenses should be recognized in income when the related revenue
or expense is recorded. Grants related to property or equipment should be
recognized over the useful lives of the related asset. Funds received before the
conditions of the grant are met should be recorded as deferred
revenue.
Stock-based
compensation
The
Company follows the guideline under ASC Topic 718 Compensation-Stock
Compensation
for
all stock based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. Stock
compensation expenses are to be recorded using the fair value
method.
Fair Value of Financial
Instruments
The
Company estimates the fair value of its financial instruments based on current
interest rates, quoted market values or the current price of financial
instruments with similar terms. Unless otherwise disclosed herein, the carrying
value of financial instruments, especially those with current maturities such as
cash and cash equivalents, accounts receivable, and accounts payable, accrued
liabilities, construction projects payable, short term and long term
loan are considered to approximate their fair values.
Fair
Value Measurements
In April
2009, the FASB released ASC 820,
Fair Value Measurements and
Disclosures,
(formerly SFAS No. 157 “
Fair Value Measurements
”)
that defines fair value, establishes a framework for measuring fair value in
accordance with U.S. GAAP, and expands disclosures about fair value
measurements.
According
to ASC 820, investment measured and reported at fair value are classified and
disclosed in one of the following hierarchy:
Level 1
- Quoted prices are available in active markets for identical investments
as of the reporting date. The type of investments included in Level 1
included listed equities and listed derivatives.
Level 2
- Pricing inputs are other than quoted prices in active markets, which are
either directly or indirectly observable as of the reporting date, and fair
value is determined through the use of models or other valuation
methodologies. Investments that are generally included in this
category include corporate bonds and loans, less liquid and restricted equity
securities and certain over-the-counter derivatives.
Level 3
- Pricing inputs are unobservable for the investment and included
situations where there is little, if any, market activity for the
investment. The inputs into the determination of fair value require
significant management judgment or estimation.
Income
taxes
The
Company follows the guideline under ASC Topic 740 Income Taxes. “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.
The
Company is subject to the taxes in the United States at tax rate of
approximately 42.7%. No provision for the US federal income taxes has
been made as the Company had no taxable income in this jurisdiction for the
reporting periods.
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, Dalian Dongtai is subject to
EIT at 11% for the nine months ended September 30, 2010. Furthermore, the Law
stipulates that enterprises that engage in municipal sewage and sludge treatment
business are eligible for special EIT treatment. According to such rules,
Dongtai Water and Dongtai Organic is entitled to a three-year EIT exemption
treatment starting whenever it generates the first operation revenue, and
additional 50% discount on the normal rate for the next three years. For the
nine months ended September 30, 2010, Dongtai Water and Dongtai Organic have
benefited from the EIT exemption preference.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 AND 2009
Statement of cash
flows
In
accordance with ASC Topic 230 Statement of Cash Flows, cash flows from the
Company’s operations are calculated based upon the local currencies. As a
result, amounts related to assets and liabilities reported on the statement of
cash flows will not necessarily agree with changes in the corresponding balances
on the balance sheet.
Basic and diluted net
earnings per share
Earnings
per share is calculated in accordance with ASC Topic 260 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 2009 financial statements to conform to
the 2010 presentation.
Recent accounting
pronouncements
In August
2010, the FASB issued Accounting Standard Updates No. 2010-21 (ASU No. 2010-21)
“Accounting for Technical Amendments to Various SEC Rules and Schedules” and No.
2010-22 (ASU No. 2010-22) “Accounting for Various Topics – Technical Corrections
to SEC Paragraphs”. ASU No 2010-21 amends various SEC paragraphs
pursuant to the issuance of Release no. 33-9026: Technical Amendments to Rules,
Forms, Schedules and Codification of Financial Reporting
Policies. ASU No. 2010-22 amends various SEC paragraphs based on
external comments received and the issuance of SAB 112, which amends or rescinds
portions of certain SAB topics. Both ASU No. 2010-21 and ASU No.
2010-22 are effective upon issuance. The amendments in ASU No.
2010-21 and No. 2010-22 will not have a material impact on the Company’s
financial statements.
In July
2010, the FASB issued Accounting Standard Update No. 2010-20 (ASU No. 2010-20)
“Receivables” (Topic 310). ASU No. 2010-20 provides financial
statement users with greater transparency about an entity’s allowance for credit
losses and the credit quality of its financing receivables. This
update is intended to provide additional information to assist financial
statement users in assessing an entity’s credit risk exposures and evaluating
the adequacy of its allowance for credit losses. The amendments in
this update apply to both public and nonpublic entities with financing
receivables, excluding short-term trade accounts receivable or receivables
measured at fair value or lower of cost or fair value. The objective
of the amendments in ASU No. 2010-20 is for an entity to provide disclosures
that facilitate financial statement users’ evaluation of (1) the nature of
credit risk inherent in the entity’s portfolio of financing receivables, (2) How
that risk is analyzed and assessed in arriving at the allowance for credit
losses and (3) The changes and reasons for those changes in the allowance for
credit losses. The entity must provide disclosures about its
financing receivables on a disaggregated basis. For public entities
ASU No. 2010-20 is effective for interim and annual reporting periods ending on
or after December 15, 2010. For nonpublic entities ASU No. 2010-20
will become effective for annual reporting periods ending on or after December
15, 2011. The Company is evaluating the impact ASU No. 2010-20 will
have on the financial statements.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 AND 2009
Stock
Compensation - amendments to clarify that an employee share-based payment
award
In April
2010, the FASB issued Accounting Standard Update No. 2010-13 “Stock
Compensation” (Topic 718). ASU No.2010-13 provides amendments to Topic 718 to
clarify that an employee share-based payment award with an exercise price
denominated in the currency of a market in which a substantial portion of the
entity's equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies
as equity. The amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010. The amendments in this Update should be applied by recording a
cumulative-effect adjustment to the opening balance of retained earnings. The
cumulative-effect adjustment should be calculated for all awards outstanding as
of the beginning of the fiscal year in which the amendments are initially
applied, as if the amendments had been applied consistently since the inception
of the award. The cumulative-effect adjustment should be presented separately.
Earlier application is permitted.
Subsequent
Events – Amendments to Certain Recognition and Disclosure
Requirements
In
February 2010, the Financial Accounting Standards Board (“FASB”) issued ASU
2010-9 Subsequent Events (Topic 855) Amendments to Certain Recognition and
Disclosure Requirements ("ASU 2010-9"). ASU 2010-9 amends disclosure
requirements within Subtopic 855-10. An entity that is an SEC filer is not
required to disclose the date through which subsequent events have been
evaluated. This change alleviates potential conflicts between Subtopic 855-10
and the SEC's requirements. ASU 2010-9 is effective for interim and annual
periods ending after June 15, 2010. The Company does not expect the
adoption of ASU 2010-09 to have a material impact on its consolidated results of
operations or financial position.
Technical
Corrections to Various Topics
In
February 2010, the FASB issued ASC Update 2010-08, which contains technical
corrections to various Topics within the ASC. Those corrections are effective
for interim and annual periods beginning after February 2, 2010. The Company is
currently evaluating the potential effects of ASC Update 2010-08.
Fair
Value Measurements and Disclosures – Improving Disclosures About Fair Value
Measurements
In
February, 2010, the FASB issued FASB ASC Update 2010-06, “Fair Value
Measurements and Disclosures – Improving Disclosures About Fair Value
Measurements,” ASU Update 2010-06 adds new requirements for disclosures of
significant transfers into and out of Levels 1, 2 and 3 of the fair value
hierarchy, the reasons for the transfers and the policy for determining when
transfers are recognized. ASU 2010-06 also adds new requirements for disclosures
about purchases, sales, issuances and settlements on a gross rather than net
basis relating to the reconciliation of the beginning and ending balances of
Level 3 recurring fair value measurements. It also clarifies the level of
disaggregation to require disclosures by “class” rather than by “major category
of assets and liabilities” and clarifies that a description of inputs and
valuation techniques used to measure fair value is required for both recurring
and nonrecurring fair value measurements classified as Level 2 or 3. ASU
Update 2010-06 is effective January 1, 2010 except for the requirements to
provide the Level 3 activity of purchases, sales, issuances and settlements
on a gross basis which are effective January 1, 2011. The adoption of ASU
2010-06 is not expected to have a material impact on the Company’s results of
operations or financial position.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 AND 2009
Accounting
and Reporting for Decreases in Ownership of a Subsidiary- a Scope
Clarification
In
January 2010, the FASB issued ASU 2010-2 Accounting and Reporting for
Decreases in Ownership of a Subsidiary- a Scope Clarification ("ASU
2010-2"). ASU 2010-2 addresses implementation issues related to the changes in
ownership provisions in the Consolidation—Overall Subtopic (Subtopic 810-10) of
the FASB Accounting Standards Codification, originally issued as FASB
Statement No. 160, Noncontrolling Interests in Consolidated Financial
Statements. Subtopic 810-10 establishes the accounting and reporting guidance
for noncontrolling interests and changes in ownership interests of a subsidiary.
An entity is required to deconsolidate a subsidiary when the entity ceases to
have a controlling financial interest in the subsidiary. Upon deconsolidation of
a subsidiary, an entity recognizes a gain or loss on the transaction and
measures any retained investment in the subsidiary at fair value. The gain or
loss includes any gain or loss associated with the difference between the fair
value of the retained investment in the subsidiary and its carrying amount at
the date the subsidiary is deconsolidated. In contrast, an entity is required to
account for a decrease in ownership interest of a subsidiary that does not
result in a change of control of the subsidiary as an equity transaction.
ASU 2010-2 is effective for the Company starting January 3, 2010. The
implementation of this issue did not have a material impact on the Company’s
financial position and results of operations.
4
.
Notes
receivable
As of
September 30, 2010 and December 31, 2009, notes receivable, with the balances of
$119,573 and $335,780, respectively, represents trade accounts receivable due
from various customers where the customers’ banks have guaranteed the payment of
the receivables. This amount is non-interest bearing and is normally
paid within three to six months. The Company has the ability to submit request
for payment to the customer’s bank earlier than the scheduled payment date, but
will incur an interest charge and a processing fee when it submits the early
payment request.
5. Accounts
receivable
As of
September 30, 2010 and December 31, 2009, the net balances of accounts
receivable
were
$4,
684
,
9
7
6 and $2,021,421,
respectively. The following table shows the aging composition of the
balances:
|
|
September
30,
2010
|
|
|
December
31,
2009
|
|
Aging
|
|
(Unaudited)
|
|
|
(Audited)
|
|
1-3
months
|
|
|
1,807,395
|
|
|
$
|
1,098,027
|
|
4-6
months
|
|
|
896,968
|
|
|
|
450,939
|
|
7-12
months
|
|
|
1,461,528
|
|
|
|
381,949
|
|
1-2
years
|
|
|
654,158
|
|
|
|
118,875
|
|
over
2 years
|
|
|
12,400
|
|
|
|
2,699
|
|
Total
|
|
$
|
4,832,449
|
|
|
$
|
2,052,489
|
|
Allowance
for doubtful accounts
|
|
|
(147,473
|
)
|
|
|
(31,068
|
)
|
Accounts
receivable, net
|
|
$
|
4,684,976
|
|
|
$
|
2,021,421
|
|
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 AND 2009
The
activity in the allowance for doubtful accounts for accounts receivable for the
nine months ended September 30, 2010 and for the year ended December 31, 2009
are as follows:
|
|
For
the Nine
months
Ended
September
30,
2010
(Unaudited)
|
|
|
For
the
year
Ended
December
31,
2009
(Audited)
|
|
Beginning
allowance for doubtful account
|
|
$
|
31,068
|
|
|
$
|
12,132
|
|
Additional
charged to bad debt expense
|
|
|
113,486
|
|
|
|
18,929
|
|
Foreign
currency translation adjustment
|
|
|
2,919
|
|
|
|
7
|
|
Ending
allowance for doubtful accounts
|
|
$
|
147,473
|
|
|
$
|
31,068
|
|
6. Construction
reimbursement receivable
Dongtai
Organic commenced trial production in March 2009, as the development of plans to
bring the integrated anaerobic fermentation system necessary for its intended
use. In fiscal year 2009, Dongtai Organic aggregately disposed 42,789 tons of
municipal sl
udge, and recorded a construction
reimbursement receivable of $846,270. Payments are to be processed by Dalian
Municipal Government per BOT contractual agreement as a reimbursement of current
related expense. Therefore, Dongtai Organic accounted the reimbursement as a
reduction of current period construction cost. As of June 30, 2010, the
remaining balance was approximately $107,426.
Due to
different measuring standards and estimate applied by the Company and Dalian
Municipal Government, there is a variance of approximately 5,400 tons in the
estimate made by the management in volume of sludge being processed, which
corresponding to the remaining balance of $107,426.
As
confirmed, Dalian Municipal Government will not reimburse the remaining balance
in the amount of $107,426 claimed by the Company. The management of Dongtai
Organic decided to write off the outstanding balance in September 2010. The
transaction was accounted for as an increase in construction cost, and
reclassification was made to corresponding fixed asset account.
7.
Inventory
As of
September 30, 2010 and December 31, 2009, inventory consists of raw materials
and recycled commodities as follows:
|
|
September
30,
2010
|
|
|
December
31,
2009
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Raw
materials
|
|
$
|
1,107,408
|
|
|
$
|
719,948
|
|
Recycled
commodities
|
|
|
1,347,486
|
|
|
|
1,365,081
|
|
|
|
$
|
2,454,894
|
|
|
$
|
2,085,029
|
|
Raw
materials are mainly comprised of waste catalyst, which is a scarce resource,
collected from oil refineries, chemicals used in the waste treatment and
recycling process, and packaging materials.
As of
September 30, 2010 and December 31, 2009, the balances of waste catalyst
amounted to $473,515 and $422,547, respectively. Because of the impact of the
global economic crisis, the prices for the final products that produced from the
processing of waste catalyst, including chemical compounds of valuable metals
have decreased dramatically since the end of 2008. Management believes that the
holding of waste catalyst before the rise of market price complies with
shareholder’s interest.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 AND 2009
Recycled
commodities are mainly comprised of alloys and cupric sulfate that are produced
from waste collected, and aluminum and iron products recycled from waste
collected, etc.
For the
nine months ended September 30, 2010 and twelve months ended December 31, 2009,
no allowance for obsolete inventories was recorded by the Company.
8. Property, plant and
equipment
|
|
September
30,
2010
|
|
|
December
31,
2009
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Buildings
|
|
|
15,528,178
|
|
|
$
|
14,761,998
|
|
Machinery
and equipment
|
|
|
19,643,587
|
|
|
|
19,510,334
|
|
Office
equipment
|
|
|
698,360
|
|
|
|
670,015
|
|
Vehicles
|
|
|
1,641,384
|
|
|
|
1,281,659
|
|
|
|
|
37,511,510
|
|
|
|
36,226,006
|
|
Less:
accumulated depreciation
|
|
|
(5,568,082
|
)
|
|
|
(3,904,861
|
)
|
Property,
plant and equipment, net
|
|
|
3,1943,428
|
|
|
|
32,319,145
|
|
|
|
|
|
|
|
|
|
|
Construction
in progress
|
|
|
14,562,102
|
|
|
|
9,123,927
|
|
Total
|
|
$
|
46,505,530
|
|
|
$
|
41,443,072
|
|
Depreciation
expenses for the nine months ended September 30, 2010 and 2009 were $1,493,861
and $590,263, respectively.
For the
nine months ended September 30, 2010 and 2009, capitalized interests amounted to
$220,715 and $231,056, respectively.
As of
September 30, 2010, certain buildings, with the net book value of $4,194,156,
have been pledged as the collateral for loans from Shanghai Pudong Development
Bank. Certain machinery and equipments, with the net book value of $14,414,599,
have been pledged as the collateral for loans from China Merchants
Bank.
9. Other
assets
As of
September 30, 2010 and December 31, 2009, other asset in the amount of
$1,172,509 and $1,074,531 is primarily comprised of value added tax credit of
$1,164,430 and $1,055,523, 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.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 AND 2009
10. Short-term
loan
As of
September 30, 2010 and December 31, 2009, the short-term loan balance represents
a loan that borrowed from Shanghai Pudong Development Bank.
The
following table identifies the material terms of short-term loans:
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
Interest
Rate
(Per
Annum)
|
|
|
September
30,
2010
|
|
|
December
31,
2009
|
|
Effective
Date
|
|
|
Maturity
|
|
Type
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
06-13-2010
|
|
|
|
06-10-2011
|
|
Secured
|
|
|
6.372
|
%
|
|
$
|
2,989,313
|
|
|
$
|
-
|
|
|
04-27-2009
|
|
|
|
04-27-2010
|
|
Secured
|
|
|
5.841
|
%
|
|
|
-
|
|
|
|
3,809,022
|
|
|
05-18-2009
|
|
|
|
05-18-2010
|
|
Secured
|
|
|
5.841
|
%
|
|
|
-
|
|
|
|
1,465,008
|
|
|
06-04-2009
|
|
|
|
06-04-2010
|
|
Secured
|
|
|
5.841
|
%
|
|
|
-
|
|
|
|
1,465,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,989,313
|
|
|
$
|
6,739,038
|
|
Total
interest expense on short-term loans for the nine months ended September 30,
2010 and 2009 amounted to $174,238 and $65,698, respectively.
The loan
is secured by certain properties and land use right of the Company.
11. Long-term
loan
As of
September 30, 2010 and December 31, 2009, the following table identifies the
material terms of the long-term loans:
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
Interest
Rate
|
|
|
|
September
30,
2010
|
|
|
December
31,
2009
|
|
Lending
Bank
|
|
Effective
Date
|
|
|
Maturity
|
|
|
(Per
Annum)
|
|
Type
|
|
(Unaudited)
|
|
|
(Audited)
|
|
China
Merchants Bank
|
|
|
01-08-2009
|
|
|
|
01-07-2017
|
|
|
|
6.237
|
%
|
Secured
|
|
$
|
12,792,841
|
|
|
$
|
12,452,570
|
|
China
Merchants Bank
|
|
|
08-20-2009
|
|
|
|
08-20-2017
|
|
|
|
6.237
|
%
|
Secured
|
|
|
3,269,561
|
|
|
|
3,548,067
|
|
Shanghai
Pudong Development Bank
|
|
|
04
-27-2010
|
|
|
|
04
-27-2013
|
|
|
|
5.94
|
%
|
Secured
|
|
|
1,644,122
|
|
|
|
-
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,706,524
|
|
|
$
|
16,000,637
|
|
The
interest rates for the two loans that borrowed from China Merchants Bank are
determined based on the interest rate of loans above 5 years set by the People’s
Bank of China plus 5% and is adjustable every six months. As of September 30,
2010, the benchmark interest rate of loans over 5 years is 5.94%. The BOT
franchise right of Dongtai Water and Dongtai Organic, and certain manufacturing
machinery of the Company are pledged as collaterals for the two loans. Dalian
Lida Environmental Engineering Co., Ltd, which holds 20% equity interest in
Dongtai Water, acts as co-guarantor for the loan with the balance of
$3,736,642.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 AND 2009
On April
20, 2010, the Company entered into a long-term loan agreement with Shanghai
Pudong Development Bank. Pursuant to the loan agreement, the principal amounts
to RMB 40 million (approximately $5.90 million) and matures on April 27, 2013.
As of September 30, 2010, the Company had drawn down the first installment of
the loan in the amount of RMB 11 million (approximately $1.64 million). The loan
is to be used exclusively for the construction of the Centralized Hazardous
Waste Treatment Center of Dalian City.
The long
term loans are scheduled to be repaid on installments. The following table shows
the installments schedule:
Year
|
|
Amount
|
|
2010
|
|
$
|
1,129,912
|
|
2011
|
|
|
2,259,825
|
|
2012
|
|
|
3,734,425
|
|
2013
|
|
|
2,407,285
|
|
2014
|
|
|
2,259,825
|
|
Thereafter
|
|
|
4,915,252
|
|
Total
|
|
$
|
16,706,524
|
|
As of
September 30, 2010, the installments amounting to $2,259,825 will be due within
one year, and are classified in current liabilities.
12. Government
subsidy
As of
September 30, 2010 and December 31, 2009, the government subsidy consists of the
followings:
|
|
September
30,
2010
|
|
|
December
31,
2009
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Dalian
Dongtai
|
|
$
|
2,241,985
|
|
|
$
|
1,465,008
|
|
Zhuorui
|
|
|
995,399
|
|
|
|
999,071
|
|
Hunan
Hanyang
|
|
|
3,138,779
|
|
|
|
-
|
|
|
|
$
|
6,376,163
|
|
|
$
|
2,464,079
|
|
Dalian
Dongtai received a government subsidy from the central government of PRC of
$747,300 (RMB5, 000,000) and $1,494,600(RMB 10, 000,000) in 2010 and 2009
respectively, to support the construction of the Centralized Hazardous Waste
Treatment Center of Dalian City, which is located in Dalian Development
Area.
In 2007,
Zhuorui received government subsidies of RMB7, 036,000 (approximately
$1,051,640), of which RMB6, 000,000 (approximately $884,760) is to be used to
purchase production machinery or pay construction expenditures, and the other
RMB1, 036,000 (approximately $152,769) is granted as a reimbursement for the
acquisition of land use right.
On
January 27, 2010, Hunan Hanyang received a government subsidy of RMB21 million
(approximately $3,096,660) from the central government of PRC, representing the
first installment of a total expected government subsidy of RMB110 million
(approximately $16.22 million) as a reimbursement of construction cost in the
Hazardous Waste Treatment Center of Changsha City, Hunan Province.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 AND 2009
The
subsidies are initially recorded as deferred income. Upon the completion and
acceptance of the government subsidized projects, subsidies are recognized over
the useful lives of the related assets.
13. Settlement
expense
In
February, 2010, the Company and a consulting firm, which provides business
advisory and private placement services to the Company, signed a Settlement and
Release Agreement (the “Agreement”) to resolve all remaining issues between
them. Pursuant to the Agreement, the consulting firm received:
i)
|
62,500
shares of free-trading, unrestricted common stock of the
Company.
|
|
|
ii)
|
A
Placement Agent Warrant (denominated as “Unit Purchase Option”) to
purchase up to 5 units at 120% of the offering price of the Unit. The
original offering price of a Unit was $60,000 at time of offering. Each
unit consists of 29, 412 shares of restricted common stock of the Company,
“A” warrants to purchase 14,706 common shares of the Company at an
exercise price of $2.50 and “B” warrants to purchase 14,706 common shares
of the Company at an exercise price of
$3.20.
|
As
management has determined that the Units are issued in settlement of a dispute
between the parties, each Unit is to be valued at its fair value. Utilizing the
Black-Scholes option-pricing model resulted in an aggregate fair value of the
elements (stock, warrant A and warrant B) of each Unit to be $128,089 ($88,236,
$22,016 and $17,837, respectively) or $640,446 for all 5 Units. The following
significant assumptions were used in preparing the Black-Scholes calculation
assumptions: expected dividend yield 0%; risk-free interest rate of 2.48%;
volatility of 89.59% and an expected term of 5 years.
The fair
market value of the 62,500 shares of free-trading, unrestricted common stock at
issuance date was approximately $159,375. The fair value of 5 Units is $640,446
and the cost of purchase is $360,000. The difference between fair value of all 5
Units and cost of purchase in the amount of $280,446 was charged to expense
account during current period. Therefore, the Company recognized a settlement
expense of $439,821.
14. Related parties
transactions
As of
September 30, 2010 and December 31, 2009, the amounts due from (to) related
parties were as follows:
|
|
September
30,
2010
|
|
|
December
31,
2009
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
Due
to Dalian Dongtai Investment Co., Ltd. (“Dongtai
Investment”)
|
|
$
|
(388,611
|
)
|
|
$
|
(380,902
|
)
|
Due
from Dalian Lida Environmental Engineering Co., Ltd. (“Dalian
Lida”)
|
|
$
|
239,145
|
|
|
$
|
234,401
|
|
Payable
to Dongtai Investment consists of unsecured short term loans, amounting to
$388,611 (RMB 2.6 million), with interest rate of 6% per annum, repayable on
demand.
Receivable
from Dalian Lida is an unsecured short term loan of $239,145 (RMB1.6 million)
with interest rate of 6% per annum, effective on August 1, 2009, and repayable
on demand.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 AND 2009
15. 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
following table demonstrates the calculations for earnings per share for the
nine months ended September 30, 2010 and 2009:
|
|
2010
|
|
|
2009
|
|
Net
income attributable to the Company
|
|
$
|
2,848,869
|
|
|
$
|
1,333,618
|
|
Adjustments
for diluted EPS calculation
|
|
|
-
|
|
|
|
-
|
|
Adjusted
net income for calculating EPS-diluted
|
|
$
|
2,848,869
|
|
|
$
|
1,333,618
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares - Basic
|
|
|
15,327,606
|
|
|
|
15,267,387
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
Option
|
|
|
19,927
|
|
|
|
-
|
|
Warrants
|
|
|
2,209,583
|
|
|
|
-
|
|
Weighted
average number of common shares - Diluted
|
|
|
17,557,116
|
|
|
|
15,267,387
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.19
|
|
|
$
|
0.09
|
|
Diluted
|
|
$
|
0.16
|
|
|
$
|
0.09
|
|
16. Change in reporting
entity
Per
definitive agreement and amended article of incorporation, on September 8, 2010,
Dongtai contributed additional $59,800 (RMB 400,000) and a third party
contributed $19,400 (RMB 130,000) as additional paid-in capital in controlling
subsidiary Sino-Norway EEC. The percentage of Dongtai ownership interest in
Subsidiary changed to 86%, and noncontrolling interest are accounted for the
remaining 14%.
Tentatively,
the third party agreed to contribute $100,150 (RMB 670,000) and Dongtai has
agreed to contribute another $59,800 (RMB400,000) by the end of June, 2011. By
that time, the Company will own 60% of Sino-Norway EEC, and noncontrolling
interest will be accounted for the remaining 40%.
The
change in equity structure of Sino-Norway, and a change in reporting entity
during current period does not have a material effect in the financial
reporting.
CHINA
INDUSTRIAL WASTE MANAGEMENT, INC.
NOTES TO
UNAUDITED COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2010 AND 2009
17. Commitment and
Contingency
Capital
commitment
The
Company has purchasing commitments that result from construction contracts and
equipment procurement contracts signed for the development of the Centralized
Hazardous Waste Treatment Center of Dalian City. As of September 30, 2010, the
commitment information is as follows:
Construction
|
|
$
|
2,717,756
|
|
Equipment
|
|
|
3,012,399
|
|
Total
|
|
$
|
5,730,156
|
|
Zhuorui
In March
2009, Zhuorui commenced trial production. Due to the unfavorable market prices
for Zhuorui’s final products, including chemical compounds of valuable metals,
and imperfections detected in the trial production, the Company decided to
suspend the trial production in January 2010 to make improvement on the
technical flow prior to market recovery. With the improvement on the technical
flow, Zhuorui can generate an additional by-product, which strengthens its
profitability and qualifies upgraded emission standards.
The
capital expenditure for the improvement is approximately $2.1 million
(approximately RMB 14 million), and it is estimated that a four to five months
period is necessary to accomplish this improvement. As of November 12, 2010,
Zhuorui has spent approximately $1,240,132(RMB 8.3 million) on rotary kiln, heat
exchanger; de-sulfate system, dust collector and sewage disposal system.
Preparation of the new equipment is in the stage of finalization. Zhuorui
expects the commencement of a pilot by the end of December 2010 as the local
government has imposed new regulations on issuance of permission for safety
reasons.
Despite
the advantages brought by this proposed technical improvement, there are
possibilities of losses caused by unexpected events, take for example, it costs
additional time or fund to accomplish the improvement, the attempt to generate
additional by-product fails or the depressing market conditions last longer than
our expectation.
18. Subsequent
events
The Company
has evaluated all subsequent events through November 12, 2010, the date these
financial statements were issued, and determined that there were no subsequent
events or transactions that required recognition or disclosure in the financial
statements.