Xinde Technology Co - FORM 10-Q

Attached files

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EX-32.1 - CERTIFICATION - Xinde Technology Co	v240041_ex32-1.htm
EX-31.2 - CERTIFICATION - Xinde Technology Co	v240041_ex31-2.htm
EX-32.2 - CERTIFICATION - Xinde Technology Co	v240041_ex32-2.htm
EX-31.1 - CERTIFICATION - Xinde Technology Co	v240041_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

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

For the transition period from __________ to __________

COMMISSION FILE NUMBER: 000-53672

XINDE TECHNOLOGY COMPANY

(Exact name of registrant as specified in its charter)

Nevada		20-812712
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

Number 363, Sheng Li West Street, Weifang, Shandong Province,

The People’s Republic of China

(Address of principal executive offices)

(011) 86-536-8322068

(Registrant’s Telephone Number, Including Area Code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer (Check one):

Large Accelerated Filer ¨

Accelerated Filer ¨

Non-Accelerated Filer ¨

Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes ¨ No x

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 8, 2011, the registrant had 240,000,000 shares of common stock, par value $0.001 per share, issued and outstanding.

TABLE OF CONTENTS

		PAGE
PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS		3

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION		5

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		15

ITEM 4. CONTROLS AND PROCEDURES		15

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS		16

ITEM 1A. RISK FACTORS		16

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		16

ITEM 3. DEFAULTS UPON SENIOR SECURITIES		16

ITEM 4. (REMOVED AND RESERVED)		16

ITEM 5. OTHER INFORMATION		16

ITEM 6. EXHIBITS		16

SIGNATURES		18

EXHIBIT 31.1

EXHIBIT 31.2

EXHIBIT 32.1

EXHIBIT 32.2

- 2 -

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED

SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

-3-

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

CONTENTS

PAGES	F-1-F-2	CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2011 AND JUNE 30, 2011 (UNAUDITED)

PAGES	F-3	CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

PAGES	F-4-F-5	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

PAGES	F-6-F-25	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010 (UNAUDITED)

-4-

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

ASSETS

	September 30,		June 30,
	2011		2011
CURRENT ASSETS
Cash and cash equivalents	$	3,315,719	$	4,292,507
Restricted cash		219,144		-
Accounts receivable, net of allowance for doubtful accounts of $697,154 and $794,850 at September 30, 2011 and June 30, 2011, respectively		85,681,726		97,785,036
Inventories		20,124,303		10,430,199
Notes receivable, including bank acceptance notes		17,941,825		7,214,395
Prepayments for goods		7,550,622		5,710,029
Prepaid expenses and other receivables		43,753		40,362
Due from employees		191,790		39,206
Due from related party		26,100		-
Total Current Assets		135,094,982		125,511,734

LONG-TERM ASSETS
Plant and equipment, net		3,823,227		3,081,362
Land use rights, net		2,369,999		925,240
Construction in progress		166,187		889,839
Deposit for land use right		-		1,326,605
Deferred taxes		144,101		136,992
Total Long-Term Assets		6,503,514		6,360,038

TOTAL ASSETS	$	141,598,496	$	131,871,772

See accompanying notes to the condensed consolidated financial statements

F-1

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

LIABILITIES AND SHAREHOLDERS’ EQUITY

	September 30,		June 30,
	2011		2011
CURRENT LIABILITIES
Accounts payable	$	7,608,417	$	6,576,118
Short-term bank loans		2,661,032		2,630,154
Customer deposits		641,868		219,819
Notes payable, including related parties		1,625,144		1,313,909
Current portion of long-term notes payable to related parties		93,657		90,864
Income tax payable		10,911,574		9,723,497
Other payables		1,293,184		1,199,764
Value added tax payable		29,883,367		26,331,151
Due to employees		46,969		78,953
Due to related parties		213,059		132,599
Accrued expenses		845,601		829,115
Deferred taxes		653,668		937,880
Total Current Liabilities		56,477,540		50,063,823

LONG-TERM LIABILITIES
Long-term portion of notes payable to related parties		200,199		221,667
Total Long-Term Liabilities		200,199		221,667

TOTAL LIABILITIES		56,677,739		50,285,490

COMMITMENT AND CONTINGENCIES

SHAREHOLDERS’ EQUITY
Common stock, $0.001 par value; 350,000,000 shares authorized; 240,000,000 shares issued and outstanding at September 30, 2011 and June 30, 2011		240,000		240,000
Additional paid-in capital		892,334		892,334
Retained earnings (the restricted portion is $204,069 at September 30, 2011 and June 30, 2011)		74,991,600		72,613,580
Accumulated other comprehensive income		8,796,823		7,840,368
TOTAL SHAREHOLDERS’ EQUITY		84,920,757		81,586,282

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	141,598,496	$	131,871,772

See accompanying notes to the condensed consolidated financial statements

F-2

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended
	September 30, 2011			September 30, 2010
REVENUES, NET	$	22,708,137		$	30,138,909

COST OF GOODS SOLD		(18,884,367	)		(25,612,164	)
GROSS PROFIT		3,823,770			4,526,745

Selling and marketing		(420,980	)		(1,100,608	)
General and administrative		(323,026	)		(326,022	)
Bad debt recoveries		106,778			-
INCOME FROM OPERATIONS		3,186,542			3,100,115

Interest expense, net		(43,617	)		(141,090	)
Other income, net		12,792			134,603
Exempted value added tax		-			3,231,156

INCOME BEFORE INCOME TAXES		3,155,717			6,324,784

INCOME TAXES		(777,697	)		(868,407	)

NET INCOME		2,378,020			5,456,377

OTHER COMPREHENSIVE INCOME
Foreign currency translation gain		956,456			973,804

COMPREHENSIVE INCOME	$	3,334,476		$	6,430,181

WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED		240,000,000			240,000,000

NET INCOME PER SHARE, BASIC AND DILUTED	$	0.01		$	0.02

See accompanying notes to condensed consolidated financial statements

F-3

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended
	September 30, 2011			September 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,378,020		$	5,456,377

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		105,514			69,568
Provision for doubtful accounts		-			2,218
Exempted value added tax		-			(3,231,156	)
Deferred taxes		(291,322	)		442,227
Net gain on settlement of accounts receivable and accounts payable for fixed assets		(4,955	)		(2,487	)

(Increase) Decrease In:
Accounts receivable		12,094,227			(4,666,502	)
Inventories		(9,694,104	)		(3,998,198	)
Prepayments for goods		(1,840,593	)		(1,062,173	)
Prepaid expenses and other receivables		(3,393	)		(56,808	)
Due from employees		(152,584	)		(902	)
Due from related parties		(26,100	)		-

Increase (Decrease) In:
Accounts payable		1,042,980			2,514,312
Other payables		93,420			45,513
Value added tax payable		3,552,216			4,860,096
Taxes payable		1,188,077			511,150
Customer deposits		422,050			588,268
Due to employees		(31,985	)		(15,754	)
Due to related parties		80,460			54,991
Accrued expenses		16,488			(78,406	)
Net cash provided by operating activities		8,928,416			1,432,334

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment		(69,345	)		(6,660	)
Purchases of construction in progress		(205	)		(2,287	)
Payment for land use right		(131,502	)		-
Repayment of notes receivable		15,445,201			21,445,788
Issuances of notes receivable		(26,063,170	)		(23,471,881	)
Net cash used in investing activities	$	(10,819,021	)	$	(2,035,040	)

See accompanying notes to condensed consolidated financial statements

F-4

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended
	September 30, 2011			September 30, 2010
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash	$	(219,144	)	$	-
Proceeds from short-term loans		937,002			294,971
Repayments of short-term loans		(937,002	)		(884,914	)
Repayments of notes payable		(1,002,354	)		(199,953	)
Proceeds from notes payable		1,275,183			753,150
Net cash provided by (used in) financing activities		53,685			(36,746	)

NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,836,920	)		(639,452	)
Effect of exchange rate changes on cash		860,132			940,749
Cash and cash equivalents at beginning of period		4,292,507			3,399,360
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	3,315,719		$	3,700,657

SUPPLEMENTARY CASH FLOW INFORMATION
Income taxes paid	$	6,297		$	5,041
Interest paid	$	59,971		$	95,433

SUPPLEMENTAL NON-CASH DISCLOSURES:

1. During the three months ended September 30, 2011, accounts payable with an aggregate carrying amount of $10,681 was settled by two fixed assets with a combined fair value of $5,726, resulting in a gain of $4,955.

2. During the three months ended September 30, 2010, accounts payable with a carrying amount of $4,425 was settled by a fixed asset with a fair value of $1,938, resulting in a gain of $2,487.

3. During the three months ended September 30, 2011 and 2010, $732,595 and $0 were transferred from construction in progress to plant and equipment, respectively.

4. During the three months ended September 30, 2011 and 2010, $1,326,605 and $0 were transferred from deposit to land use rights.

See accompanying notes to the condensed consolidated financial statements

F-5

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES

Wasatch Food Services, Inc., (“Wasatch”) was incorporated under the laws of the State of Nevada on December 20, 2006. On April 22, 2010, Wasatch Food Services, Inc. changed its name to Xinde Technology Company (“Xinde”). The principal activities of Xinde and subsidiaries (the “Company”) are the design, development, manufacture, and commercialization of fuel injection pumps, injectors, multi-cylinder diesel engines and small generator units in the People’s Republic of China (the “PRC”) and overseas markets.

On April 14, 2011, the Company (i) effected a 4-for-1 forward stock split of the Company's common stock; (ii) increased the number of authorized shares of common stock from 150,000,000 shares to 350,000,000 shares. As a result, all the amounts in the accompanying condensed consolidated financial statements have been restated to give effect to the 4-for-1 forward stock split.

Details of the Company as of September 30, 2011 are as follows:

Name	Place and Date of Establishment/ Incorporation	Relationship	Principal Activities
Jolly Promise Ltd. (“JPL”)	British Virgin Island July 2, 2008	Wholly-owned subsidiary of Xinde	Investment holding company

H.K. Sindhi Fuel Injection Co., Ltd (“HKSIND”)	Hong Kong, PRC, June 7, 2004	Wholly-owned subsidiary of JPL	Investment holding company

F-6

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

Name	Place and Date of Establishment/ Incorporation	Relationship	Principal Activities
Weifang Huajie Fuel Injection Co., Ltd. (“Huajie”)	Shandong, PRC October 24, 2009	Wholly-owned subsidiary of HKSIND	Investment holding company

Weifang Xinde Fuel Injection System Co., Ltd. (“Weifang Xinde”)	Shandong, PRC October 29, 2007	Wholly-owned subsidiary of Huajie	Investment holding company

Weifang Hengyuan Oil Pump & Oil Fitting Co., Ltd. ("Hengyuan")	Shandong, PRC, December 21, 2001	Wholly-owned subsidiary of Weifang Xinde	Design, development, manufacture, and commercializing of fuel injection pump, diesel fuel injection systems and injectors

Weifang Jinma Diesel Engine Co., Ltd. (“Jinma”)	Shandong, PRC December 19, 2003	Wholly-owned subsidiary of Weifang Xinde	Manufacture and sale of multi-cylinder diesel engine and small generating units

Weifang Huaxin Diesel Engine Co., Ltd. (“Huaxin”)	Shandong, PRC October 20, 2003	Wholly-owned subsidiary of Weifang Xinde	Manufacture and sale of multi-cylinder diesel engine and small generating units

Inter-company accounts and transactions have been eliminated in consolidation.

F-7

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 2 – BASIS OF PRESENTATION

The Company’s unaudited condensed consolidated financial statements and for the three months ended September 30, 2011 and 2010 have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the requirements for reporting on Rule 8-03 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The condensed consolidated balance sheet information as of June 30, 2011 was derived from the audited consolidated financial statements included in the Form 10-K. These interim condensed consolidated financial statements should be read in conjunction with that report.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)	Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States 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 consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Management makes these estimates using the best information available at the time the estimates are made; however actual results when ultimately realized could differ from those estimates.

(b)	Economic and Political Risks

The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

F-8

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(c)	Fair Value of Financial Instruments

ASC 820-10, Fair Value Measurements, establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market.

These tiers include:

• Level 1—defined as observable inputs such as quoted prices in active markets;

• Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

• Level 3—defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820-10 as of September 30, 2011 are as follows:

			Fair Value Measurements at Reporting Date Using
	Carrying Value as of September 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Long-term notes payable	$	200,199		-	$	200,199	$	-

The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, notes receivable, prepayments for goods, short-term bank loans, accounts payable, customer deposits, short-term notes payable, due to employee, due to related parties and other payables, approximate their fair values because of the short maturity of these instruments. The fair value of the Company’s long-term notes payable is estimated based on the current rates offered to the Company for debt of similar terms and maturities. Under this method, the Company’s fair value of long-term notes payable was not significantly different from the carrying value at September 30, 2011.

(d)	Cash and Cash Equivalents

For financial reporting purposes, the Company considers highly liquid investments purchased with original maturity of three months or less to be cash equivalents. Restricted cash represents time deposits to guarantee bank acceptance notes. Also see Note 11.

F-9

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(e)	Inventories

Inventories are stated at the lower of cost or net realizable value. The cost of raw materials is determined on the basis of weighted average. The cost of finished goods is determined on the weighted average basis and comprises direct materials, direct labor and an appropriate proportion of overhead.

Net realizable value is based on estimated selling prices less any further costs expected to be incurred for completion and disposal.

(f)	Prepayments

Prepayments represent cash paid in advance to suppliers for purchases of raw materials.

(g)	Plant and Equipment

Plant and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is provided over their estimated useful lives, using the straight-line method. Leasehold improvements are amortized over the life of the asset or the term of the lease, whichever is shorter. Estimated useful lives are as follows:

Buildings		30 years
Machinery		10 years
Motor vehicles		5 years
Office equipment		5 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to expense as incurred, whereas significant renewals and betterments are capitalized.

(h)	Construction in Progress

Construction in progress represents direct costs of construction or the acquisition cost of buildings or machinery and design fees. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until the assets are completed and ready for their intended use.

(i)	Land Use Rights

According to the laws of China, land in the PRC is owned by the government and cannot be sold to an individual or company. However, the government grants the user a “land use right” to use the land. The land use rights granted to the Company are being amortized using the straight-line method over the lease term of fifty years.

F-10

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(j)	Impairment of Long-Term Assets

Long-term assets of the Company are reviewed annually as to whether their carrying value has become impaired, pursuant to the guidelines established in ASC 360-10. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from the related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. There was no impairment for the three months ended September 30, 2011.

(k)	Revenue Recognition

Revenue represents the invoiced value of goods sold, recognized upon the shipment of goods to customers. Revenue is recognized when all of the following criteria are met:

-Persuasive evidence of an arrangement exists,

-Delivery has occurred or services have been rendered,

-The seller's price to the buyer is fixed or determinable, and

-Collectability is reasonably assured.

The majority of the Company’s revenue results from sales contracts with distributors and revenue are recorded upon the shipment of goods. Management conducts credit background checks for new customers as a means to reduce the subjectivity of collectability.

The Company offers warranties on its products for periods between six and twelve months after the sale. The Company estimates the warranty reserves based on historical records and identical or similar types on the market. Warranty expenses related to product sales are charged to the condensed consolidated statements of income and comprehensive income in the period in which sales are recognized. For the three months ended September 30, 2011 and 2010, warranty expense was $127,300 and $132,098, respectively, and is included in cost of goods sold in the accompanying condensed consolidated statements of income and comprehensive income.

(l)	Retirement Benefits

Retirement benefits in the form of contributions under defined contribution retirement plans to the relevant authorities are charged to expense as incurred. The retirement benefits expense for the three months ended September 30, 2011 and 2010 are $77,275 and $69,806, respectively. The retirement benefits expenses are included in cost of sales, selling expenses, and general and administrative expenses.

F-11

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(m)	Foreign Currency Translation

The accompanying consolidated financial statements are presented in United States dollars. The functional currency of the Company is the Renminbi (RMB). Capital accounts of the consolidated financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate of the quarter.

	September 30, 2011	June 30, 2011	September 30, 2010
Period end RMB : US$ exchange rate	6.3885	6.4635	-
Period average RMB : US$ exchange rate	6.4034	-	6.7803

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US dollars at the rates used in translation.

(n)	Comprehensive Income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. Comprehensive income includes net income and the foreign currency translation gain.

(o)	Earnings Per Share

Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no potentially dilutive securities for the three months ended September 30, 2011 and 2010.

(p)	Segment and Geographic Reporting

The Company operates in one business segment, the design, development, manufacture, and commercialization of fuel injection pumps, injectors, multi-cylinder diesel engines and small generator units mainly in the PRC. The sales of the Company outside of the PRC were insignificant for the three months ended September 30, 2011 and 2010.

F-12

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(q)	Recent Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The guidance in ASU 2011-04 changes the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements, including clarification of the FASB's intent about the application of existing fair value and disclosure requirements and changing a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this ASU should be applied prospectively and are effective for interim and annual periods beginning after December 15, 2011. Early adoption by public entities is not permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The guidance in ASU 2011-05 applies to both annual and interim financial statements and eliminates the option for reporting entities to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. This ASU also requires consecutive presentation of the statement of net income and other comprehensive income. Finally, this ASU requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. The amendments in this ASU should be applied retrospectively and are effective for fiscal year, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The guidance in ASU 2011-08 is intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Also, the amendments improve the examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount should consider in determining whether to measure an impairment loss, if any, under the second step of the goodwill impairment test. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.

F-13

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 4 – CONCENTRATIONS

(a)

Customers

The Company’s major customers accounted for the following percentages of total sales and accounts receivable as follows:

	Sales
	Three Months Ended September 30,		Accounts Receivable
Major Customers	2011	2010	September 30, 2011	June 30, 2011

Company A	2.9%	3.1%	1.5%	3.0%
Company B	-	3.0%	-	3.3%
Company C	2.8%	2.9%	2.0%	2.8%
Company D	2.4%	2.7%	0.4%	3.2%
Company E	2.3%	2.6%	0.9%	3.0%
Company F	2.2%	-	1.7%	-

(b)

Suppliers

The Company’s major suppliers accounted for the following percentages of total purchases and accounts payable as follows:

	Purchases
	Three Months Ended September 30,		Accounts Payable
Major Suppliers	2011	2010	September 30, 2011	June 30, 2011

Company G	3.6%	10.7%	2.2%	0.2%
Company H	-	5.9%	-	-
Company I	3.0%	-	0.1%
Company J	-	5.6%	-	-
Company K	2.7%	-	1.0%	-
Company L	2.2%	4.2%	0.2%	-
Company M	1.3%	3.1%	0.3%	-

F-14

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 5 – INVENTORIES

Inventories are summarized as follows:

	September 30, 2011		June 30, 2011
Raw materials	$	12,717,565	$	7,503,324
Work-in-progress		678,375		1,325,905
Finished goods		6,728,363		1,600,970
Total inventories	$	20,124,303	$	10,430,199

NOTE 6 – NOTES RECEIVABLE

Notes receivable consist of the following:

		September 30, 2011		June 30, 2011
Notes receivable from unrelated parties:
Due December 13, 2011, interest at 12% per annum	(a)	$	1,565,313	$	1,547,149
Due December 13, 2011, interest free			56,351		9,283
Due December 24, 2011, interest at 10% per annum			23,480		25,741
Due December 24, 2011, interest free			2,968		2,661
Due January 10, 2012, interest free			95,327		61,370
Due January 10, 2012, interest at 12% per annum			1,095,719		1,083,005
Subtotal		$	2,839,158	$	2,729,209

Bank acceptance notes (aggregated by month of maturity):
Due July, 2011			-		1,547
Due August, 2011			-		77,357
Due September, 2011			-		416,476
Due October, 2011 (Settled on due dates)			804,931		909,254
Due November, 2011			797,191		1,724,762
Due December, 2011			1,856,745		1,355,790
Due January, 2012			3,580,577		-
Due February, 2012			3,673,181		-
Due March, 2011			4,390,042		-
Subtotal			15,102,667		4,485,186
Total		$	17,941,825	$	7,214,395

(a)	The notes are secured by the total assets of the borrower.

Notes receivable from unrelated parties are unsecured except for note (a).

F-15

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 7 – DUE FROM/TO RELATED PARTIES

(I)	Due To Related Parties

		September 30, 2011		June 30, 2011

Jin Xin	(a)	$	-	$	373
Liu Dianjun	(b)		132,578		53,154
Li Zengshan	(c)		80,481		79,072
Total due to related parties		$	213,059	$	132,599

(II)	Due From Related Party

		September 30, 2011		June 30, 2011

Jin Xin	(a)	$	26,100	$	-
Total due from related party		$	26,100	$	-

(III)

Due From Employees

		September 30, 2011		June 30, 2011

Current		$	191,790	$	39,206
Total due from employees	(d)	$	191,790	$	39,206

(IV)	Due To Employees

		September 30, 2011		June 30, 2011

Current		$	46,969	$	78,953
Total due to employees	(e)	$	46,969	$	78,953

(a)

Jin Xin is a shareholder of the Company and the chairman of Jinma, a subsidiary of the Company. The receivable balance represents traveling advances, which were unsecured, interest-free and collectible on demand. The payable balance represented business related expenses paid by Jinxin on behalf of the Company, which is unsecured, interest-free and has no fixed repayment term.

(b)	Liu Dianjun is a shareholder of the Company and the chairman of Hengyuan, a subsidiary of the Company. The balances represent amounts advanced from Liu Dianjun, which are interest-free, unsecured and have no fixed repayment terms.

(c)	Li Zengshan is a shareholder of the Company and the chairman of Huaxin, a subsidiary of the Company. The balances represent business related expenses paid by Li Zengshan on behalf of the Company. The balances are interest-free, unsecured and have no fixed repayment terms.

F-16

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 7 – DUE FROM/TO RELATED PARTIES (CONTINUED)

(d)	Due from employees are interest-free, unsecured and have no fixed repayment terms. The Company provides these advances for business-related purposes only, including for the purchases of raw materials and business-related travel in the ordinary course of business.

(e)	Due to employees are interest-free, unsecured and have no fixed repayment terms. The amounts primarily represent business and traveling related expenses paid by sales personnel on behalf of the Company.

NOTE 8 – LAND USE RIGHTS, NET

Land use rights consist of the following:

	September 30, 2011			June 30, 2011

Cost of land use rights	$	2,546,046		$	1,087,939
Less: Accumulated amortization		(176,047	)		(162,699	)
Land use rights, net	$	2,369,999		$	925,240

Amortization expense for the three months ended September 30, 2011 and 2010 was $13,347 and $5,685, respectively.

Amortization expense for the next five years and thereafter is as follows:

2012 (nine months)	$	40,042
2013		53,388
2014		53,388
2015		53,388
2016		53,388
Thereafter		2,116,405
Total	$	2,369,999

Two land use rights with an aggregate net book value of $53,198 and $52,995 at September 30, 2011 and June 30, 2010, respectively, were registered in the names of two members of management of the Company. The Company’s legal counsel has confirmed the ownership of these two land use rights by the Company. The Company estimates that the application for the transfer of the certificates of these two land use rights will be completed by the end of December 2011. One of the land use rights has been pledged as collateral for bank loans borrowed by Li Zengshan (shareholder and officer of the Company) in the amount of $293,856. Also see Note 14.

F-17

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 9 – PLANT AND EQUIPMENT, NET

Plant and equipment consist of the following:

	September 30, 2011			June 30, 2011

Buildings	$	3,005,347		$	2,970,474
Machinery and equipment		1,958,463			1,176,778
Office equipment		62,161			60,458
Motor vehicles		572,117			553,238
		5,598,088			4,760,948
Less : Accumulated depreciation
Buildings		(582,553	)		(551,032	)
Machinery and equipment		(817,471	)		(759,902	)
Office equipment		(45,406	)		(43,336	)
Motor vehicles		(329,431	)		(325,316	)
		(1,774,861	)		(1,679,586	)
Plant and equipment, net	$	3,823,227		$	3,081,362

Depreciation expense for the three months ended September 30, 2011 and 2010 was $92,167 and $52,588 respectively.

At September 30, 2011, the legal title to three motor vehicles and two office buildings with a total net book value of $60,049 and $642,476, respectively, were registered in the names of management members of the Company. The Company’s legal counsel has confirmed the ownership of the motor vehicles and office buildings by the Company. The Company estimates the transfer of the legal titles of the five motor vehicles and two office buildings will be completed by the end of December 2011.

One office building was pledged as collateral for bank loans borrowed by Li Zengshan (a shareholder and officer of the Company) in the amount of $293,856. Also see Note 14.

Application for ownership certificates of eleven buildings with an aggregate net book value of $1,080,501 is in progress. The Company’s legal counsel has confirmed the ownership of the eleven buildings by the Company. The application for the certificates of the buildings is expected to be completed by the end of December 2011.

F-18

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 10 – SHORT-TERM BANK LOANS

Short-term bank loans consist of the following:

	September 30, 2011		June 30, 2011
Weifang Bank:

Monthly interest only payments at 9.88% per annum, due January 24, 2012, guaranteed by Weifang Huaxin Diesel Engine Co., Ltd.	$	313,063	$	309,430

Monthly interest only payments at 7.43% per annum, due July 22, 2011, guaranteed by Weifang Hengyuan Oil Pump & Oil fitting Co., Ltd. (Repaid on its due date)		-		618,860

Monthly interest only payments at 8.83% per annum, due February 27, 2012, guaranteed by Weifang Hengyuan Oil Pump & Oil fitting Co., Ltd.		313,063		309,430

Monthly interest only payments at 7.43% per annum, due July 21, 2012, guaranteed by Weifang Hengyuan Oil Pump & Oil fitting Co., Ltd.		626,125		-

China Construction Bank:

Monthly interest only payments at 5.84% per annum, due July 29, 2011, collateralized by land use rights. (Repaid on its due date)		-		309,430

Monthly interest only payments at 6.39% per annum, due January 9, 2012, guaranteed by Weifang Jinma Diesel Engine Co.,Ltd. and Weifang Hengyuan Oil Pump & Oil fitting Co., Ltd.		1,095,718		1,083,004

Bank of China:

Monthly interest only payments at 7.87% per annum, due July 14, 2012, guaranteed by Weifang Hengyuan Oil Pump & Oil fitting Co., Ltd.		313,063		-

Total	$	2,661,032	$	2,630,154

Interest expense for short-term bank loans for the three months ended September 30, 2011 and 2010 was $77,669 and $110,523, respectively.

F-19

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 11 – NOTES PAYABLE, INCLUDING RELATED PARTIES

Notes payable consist of the following:

		September 30, 2011		June 30, 2011
Bank acceptance notes:
Due February 5, 2012		$	313,063	$	-
Subtotal	(a)		313,063		-

Notes payable to an unrelated individual:

Due August 4, 2011, interest at 14.40% per annum with the principal payable at the due date. (Repaid on its due date)			-		456,409
Due October 1, 2011, interest free with the principal payable at the due date. (Repaid on its due date)			9,789		6,568
Due November 27, 2011, interest at 12% per annum with the principal payable at the due date.			156,531		154,715
Due December 30, 2011, interest at 39.6% per annum with the principal payable at the due date.			46,959		-
Due May 4, 2012, interest at 14.36% per annum with the principal payable at the due date.			397,589		392,976
Due May 4, 2012, interest at 12% per annum with the principal payable at the due date.			150,270		148,526
Due August 4, 2012, interest at 14.40% per annum with the principal payable at the due date.			391,328		-
Due September 18, 2012, interest at 36% per annum with the principal payable at the due date.			31,306		-
Subtotal			1,183,772		1,159,194

Notes payable to related individuals:

Due December 24, 2011, interest at 10.00% per annum with the principal payable at the due date	(b)		28,129		100,565
Due June 28, 2012, interest at 10.00% per annum with the principal payable at the due date	(b)		100,180		54,150
Subtotal			128,309		154,715

Total		$	1,625,144	$	1,313,909

(a)	The bank acceptance notes are secured by $219,144 of restricted cash at September 30, 2011.

(b)	The notes were due to Mr. Li Zengshan, a shareholder and officer of the Company. The current balances represent loans to the Company which are unsecured.

Notes payable to an unrelated individual are unsecured.

F-20

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 12 – LONG -TERM NOTES PAYABLE TO RELATED PARTIES

Long-term notes payable to related parties consist of the following:

		September 30, 2011			June 30, 2010
Notes payable to related individuals:
Due August 4, 2014, monthly interest payment is 7.46% per annum. Principal is repaid every month in 60 equal installments from August 4, 2009.	(a)	$	293,856		$	312,531
Total long-term notes payable			293,856			312,531
Less: Current portion			(93,657	)		(90,864	)
Long-term portion		$	200,199		$	221,667

The repayment schedule for long-term notes payable is as follows:

Years Ended September 30,	Amount
2012	$	93,657
2013		100,892
2014		99,307
Total	$	293,856

(a)	This note is due to Mr. Li Zengshan, who is a shareholder of the Company. The balance represents a loan to the Company to support business operations.

F-21

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 13 – TAXES

(a)	Corporation Income Tax (“CIT”)

On March 16, 2007, the National People’s Congress of China approved the Corporate Income Tax Law of the People’s Republic of China (the “new CIT law”), which went into effective on January 1, 2008. In accordance with the relevant tax laws and regulations of PRC, the applicable corporate income tax rate for Hengyuan, Jinma and Huaxin is 25%. However, prior to January 2011, Jinma and Huaxin were defined by the local tax bureau as tax payers subject to the “Verification Collection” method, according to which the amount of income taxes paid is determined by the local tax bureau based on certain criteria instead of applying the CIT rate of 25%. Therefore, the amount of income tax assessed for Jinma and Huaxin under this Verification Collection method differed from the normal computation by applying the CIT rate of 25%.

The Company received written authorization from the local Chinese government to extend the payment of its current income tax due of approximately $10.9 million.

Effective January 1, 2007, the Company adopted ASC 740-10, Accounting for Uncertainty in Income Taxes. The interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.

Under ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of September 30, 2011, the Company does not have a liability for unrecognized tax benefits.

The Company’s income tax expense for the three months ended September 30, 2011 and 2010 are summarized as follows:

	September 30, 2011			September 30, 2010
Current:
Provision for CIT	$	1,069,019		$	426,180

Deferred:
Provision for CIT		(291,322	)		442,227

Income tax expense	$	777,697		$	868,407

F-22

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 13 – TAXES (CONTINUED)

The Company’s income tax expense differs from the “expected” tax expense for the three months ended September 30, 2011 and 2010 (computed by applying the CIT rate of 25% percent to income before income taxes) as follows:

	September 30, 2011			September 30, 2010

Computed “expected” expense	$	788,929		$	1,581,196
Permanent differences		(11,232	)		(379,138	)
Favourable tax rates		-			(333,651	)

Income tax expense	$	777,697		$	868,407

The tax effects of temporary differences that give rise to the Company’s net deferred tax assets and liabilities as of September 30, 2011 and June 30, 2011 is as follows:

	September 30, 2011			June 30, 2011

Deferred tax assets:
Current portion:
Sales	$	468		$	462
Bad debt provision		139,178			164,010
Other expenses		291,154			231,700
Subtotal		430,800			396,172
Deferred tax liabilities:
Current portion:
Sales cut-off		(983,508	)		(1,256,924	)
Other		(100,960	)		(77,128	)
Subtotal		(1,084,468	)		(1,334,052	)

Net deferred tax liabilities- current portion		(653,668	)		(937,880	)
Deferred tax assets:
Non-current portion:
Depreciation		141,351			132,055
Amortization		2,750			4,937
Subtotal		144,101			136,992

Net deferred tax assets - non-current portion		144,101			136,992

Total net deferred tax liabilities	$	(509,567	)	$	(800,888	)

F-23

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 13 – TAXES (CONTINUED)

(b)	Tax Holiday Effect

For the three months ended September 30, 2011 and 2010 the PRC corporate income tax rate was 25%. Certain subsidiaries of the Company are entitled to favorable tax rates for the periods ended September 30, 2011 and 2010.

The pro forma combined effects of the favorable tax rates available to the Company for the three months ended September 30, 2011 and 2010 are as follows:

	For the Three Months Ended September 30,
	2011		2010
Tax holiday effect	$	-	$	333,651
Basic net income per share effect	$	-	$	0.001

(c)	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 Chinese Laws. The value added tax standard rate is 17% of the gross sale 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.

In the three months ended September 30, 2010, output VAT payable of $3,231,156 was exempted by the local tax bureau to honor the Company’s continuous contribution to the local economy and its achievement of becoming a United States public reporting company, resulting in other income of $3,231,156 which was reflected in the accompanying condensed consolidated statement of income and comprehensive income as exempted value added tax for the three months ended September 30, 2010.

The VAT payable was $29,883,367 and $26,331,151 at September 30, 2011 and June 30, 2011, respectively. The Company received written authorization from the local tax authorities to defer the payment of its current VAT payable in anticipation of additional future exemptions from the local tax bureau.

F-24

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

NOTE 14 – CONTINGENCIES

On August 4, 2009, Hengyuan entered into a guarantee contract to serve as guarantor for bank loans borrowed by Mr. Li Zengshan, a shareholder and officer of the Company, from the Industrial and Commercial Bank of China with a guarantee amount of $293,856. Under this guarantee contract, a land use right and an office building of Hengyuan were pledged as collateral for the bank loans. (Also see Notes 8 and Note 9)

A default by Mr. Li Zengshan is considered remote by management. No liability for the guarantor’s obligation under the guarantee contract was recognized as of September 30, 2011.

F-25

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward Looking Statements

The following discussion of the financial condition and results of operations of Xinde Technology Company, a Nevada corporation and its subsidiaries (the “Company” or “Xinde”) is based upon and should be read in conjunction with our unaudited condensed consolidated financial statements and their related notes included in this quarterly report. This report may contain forward-looking statements. Generally, the words “believes”, “anticipates”, “may”, “will”, “should”, “expect”, “intend”, “estimate”, “continue” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this report or other reports or documents we file with the SEC from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

Notable Corporate Action

On April 7, 2011 the Company held a special meeting of its stockholders. At the special meeting, the Company’s stockholders approved, by the requisite member of votes, to increase the amount of the Company’s authorized common stock from 150,000,000 to 350,000,000 shares and to effect a 4-for-1 forward split of the Company’s outstanding common stock, resulting in 240,000,000 shares outstanding (effective as of April 14, 2011). As a result, each reference herein to shares of common stock as well as the financial information included herein is presented as giving effect to the 4-for-1 forward stock split.

Summary of the Company’s Current Business

The Company operates in one business segment, the design, development, manufacture, and commercialization of fuel injection pumps, injectors, multi-cylinder diesel engines and small generator units mainly in the People’s Republic of China. However, our products compete in three primary product segments, namely (1) fuel injection system products, (2) diesel engine products and (3) generator products. We believe our broad range of products (including non-vehicle diesel engines, diesel generators, injection pumps, injectors and three-coupling components, and agricultural machinery and construction machinery) increases our competitiveness.

The Company is based in China’s Shandong Province in the city of Weifang where many large and medium-sized diesel engine enterprises and related products and components manufacturers are located. Weifang is also an important traffic center on the east coast in northern China. We believe our location makes the purchase of raw materials and sales of our products very convenient and reduces the costs associated with sales while reducing freight costs.

We have developed fuel injection system products that we believe will meet the Euro III Emissions Standard, which will become most relevant in light of China’s initiative to implement the Euro III Emissions Standard in 2010. Furthermore, we believe that we are China’s only company with exclusive intellectual property rights for fuel injection systems meeting such Euro III Emissions Standard which could lead to broad market appeal. Due to our strict technical standards and quality control in production process, our products have become well-known brands in their markets throughout China. Our Company has always placed quality control first and we received our ISO9001 certification in 2005.

Our products feature a cost and price advantage arising from our independently owned intellectual property. For example, our integrated electromechanical electronically-controlled high-pressure fuel injection system with common rail sells for RMB7,000 (US$1,029) per set as compared with products produced by some of our largest competitors (BOSCH and DENSO) which offer comparable products for RMB15,000 (US$2,011) per set. As a result, we believe such products will gain market share and be instrumental in improving our competitive position and brand influence.

- 4 -

We also have a long-term relationship with Tianjin University’s Combustion Laboratory of Combustion Engines, a national key laboratory located in Tianjin, China, which contributes to our growing expertise and reputation in the field of integrated electromechanical electronically-controlled high-pressure fuel injection systems with common rail in China. In addition, we have an experienced team of in-house technicians which contributes to our product’s technical content and ultimately, our core competitiveness.

Through independent development, cooperation and introduction, we have developed a variety of diesel engine injector assemblies for Sitair, 170, 190 and 105 models as well as multi-cylinder No. 1, BX, BXD, IIW and DT12/24-10X (electronic regulator) injection pump assemblies and oil transfer pumps. In addition, we have fully acquired the production process and technology for EGR (Exhaust Gas Recirculation) diesel engines and gas power generators that are in growing demand in the marketplace.

We have established nationwide marketing and after-sale service networks in China. We have established more than 20 branches throughout China, including Fu’an, Guangzhou, Dongguan, Jiangdu, Chengdu, Chongqing, Kunming, Taiyuan, Shenyang, Changsha and Urumchi. The Company employs agents throughout China, who receive commissions on the amount of products that they help the Company to sell. Agreements with such agents are generally formed during national trade fairs or other types of trade exhibitions. We pay for transportation expenses and the products are generally delivered via road vehicles. Mobile technicians operate our after-sales network. Each is assigned to a different geographical area.

The above described corporate structure of the Company and the Subsidiaries is illustrated below:

Each of our Subsidiaries has its own marketing network. The Company’s goal is to utilize each of such networks to create a countrywide network. The Company has made its after-sales service a priority, setting up a special after-sales service management department to provide users with after-sales services.

Our principal offices are located at Number 363, Sheng Li West Street, Weifang, Shandong Province, The People’s Republic of China, Telephone: (86) 536-8322068, Facsimile: (86) 852-28450504. The Company has also launched a new company website in English at www.chinaxinde.cn. The Company’s common stock is currently quoted on the OTCQB under the symbol “WTFS”.

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Critical Accounting Policies, Estimates and Assumptions

The SEC defines critical accounting policies as those that are, in management’s view, most important to the portrayal of our financial condition and results of operations and those that require significant judgments and estimates.

The discussion and analysis of our financial condition and results of operations is based upon our financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities. On an on-going basis, we evaluate our estimates including the allowance for doubtful accounts, the salability and recoverability of inventory, income taxes and contingencies. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.

Fair Value of Financial Instruments

ASC 820-10 (formerly SFAS No. 157, Fair Value Measurements) establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market.

These tiers include:

• Level 1—defined as observable inputs such as quoted prices in active markets;

• Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

• Level 3—defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820-10 as of September 30, 2011 are as follows:

			Fair Value Measurements at Reporting Date Using
	Carrying Value as of September 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Long-term notes payable	$	200,199	$	-	$	200,199	$	-

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Cash and Cash Equivalents

For financial reporting purposes, the Company considers highly liquid investments purchased with original maturity of three months or less to be cash equivalents.

Inventories

Net realizable value is based on estimated selling prices less any further costs expected to be incurred for completion and disposal.

Plant and Equipment

Buildings:	30 years
Machinery:	10 years
Motor vehicles:	5 years
Office equipment:	5 years

Land Use Rights

Under Chinese law land is owned by the state or rural collective economic organizations. The state issues to the land users the land use right certificate. Land use rights can be revoked and the land users forced to vacate at any time when redevelopment of the land is in the public interest. The public interest rationale is interpreted quite broadly and the process of land appropriation may be less than transparent. The land use rights granted to the Company are being amortized using the straight-line method over the lease term of fifty years.

Revenue Recognition

Revenue represents the invoiced value of goods sold, recognized upon the shipment of goods to customers. Revenue is recognized when all of the following criteria are met:

-Persuasive evidence of an arrangement exists,

-Delivery has occurred or services have been rendered,

-The seller's price to the buyer is fixed or determinable, and

-Collectability is reasonably assured.

The Company offers warranties on its products for periods between six and twelve months after the sale. The Company estimates the warranty reserves based on historical records and identical or similar types on the market. Warranty expenses related to product sales are charged to the consolidated statements of income and comprehensive income in the period in which sales is recognized. During the three months ended September 30, 2011 and 2010, warranty expense was $127,300 and $132,098, respectively, and is included in selling and marketing expenses in the accompanying consolidated statements of income and comprehensive income.

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Foreign Currency Translation

	September 30, 2011		June 30, 2011		September 30, 2010
Period end RMB : US$ exchange rate		6.3885		6.4635		-
Period average RMB : US$ exchange rate		6.4034		-		6.7803

Segment

The Company operates in one business segment, the design, development, manufacture and commercialization of fuel injection pumps, injectors, multi-cylinder diesel engines and small generator units mainly in the PRC. Our sales made outside of the PRC were insignificant for the three months ended September, 2011 and 2010.

Results of Operations For the Three Months Ended September 30, 2011 Compared to the Three Months Ended September 30, 2010

The following table sets forth the amounts and the percentage relationship to revenues of certain items in our consolidated statements of income for the three months ended September 30, 2011 and 2010:

	For the Three Months Ended September 30,

	2011						2010						Comparisons
	Amount			% of Revenues			Amount			% of Revenues			Change in Amount			Change in %
	$						$						$
REVENUES, NET		22,708,137			100	%		30,138,909			100	%		(7,430,772	)		(25	)%

COST OF GOODS SOLD		(18,884,367	)		(83)	%		(25,612,164	)		(85)	%		6,727,797			(26	)%
GROSS PROFIT		3,823,770			17	%		4,526,745			15	%		(702,975	)		(16	)%

Selling and marketing		(420,980	)		(2)	%		(1,100,608	)		(4)	%		679,628			(62	)%
General and administrative		(323,026	)		(1)	%		(326,022	)		(1)	%		2,996			(1	)%
Bad debt recoveries		106,778			0.5	%		-			-			106,778			-
INCOME FROM OPERATIONS		3,186,542			14	%		3,100,115			10	%		86,427			3	%

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	For the Three Months Ended September 30,

	2011						2010						Comparisons
	Amount			% of Revenues			Amount			% of Revenues			Change in Amount			Change in %
	$						$						$
Interest expense, net		(43,617	)		(0.2)	%		(141,090	)		(0.47)	%		97,473			(69	)%
Other income, net		12,792			0.1	%		134,603			0.45	%		(121,811	)		(90	)%
Exempted value added tax		-			-			3,231,156			11	%		(3,231,156	)		(100	)%
INCOME FROM OPERATIONS BEFORE INCOME TAXES		3,155,717			14	%		6,324,784			21	%		(3,169,067	)		(50	)%
INCOME TAXES		(777,697	)		(3	)%		(868,407	)		(3	)%		90,710			(10	)%
NET INCOME		2,378,020			10	%		5,456,377			18	%		(3,078,357	)		(56	)%
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain		956,456			4	%		973,804			3	%		(17,348	)		(2	)%

COMPREHENSIVE INCOME		3,334,476			15	%		6,430,181			21	%		(3,095,707	)		(48	)%

Revenues

Our revenues are derived from the design, development, manufacture, and commercialization of fuel injection pumps, injectors, multi-cylinder diesel engines and small generator units for the PRC and overseas markets. The table below sets forth a breakdown of our revenues by product for the three months indicated:

	For the Three Months Ended September 30,
	2011						2010						Comparisons
	Amount			% of Revenues			Amount			% of Revenues			Change in Amount			Change in %
	$						$						$
Revenues:
Electric pumps		1,349,291			6	%		3,034,594			10	%		(1,685,303	)		(56	)%
Multi-cylinder pumps		4,707,929			20	%		10,247,061			34	%		(5,539,132	)		(54	)%
Single-cylinder pumps		116,338			0.5	%		460,068			2	%		(343,730	)		(75	)%
Fuel muzzles		1,357,149			6	%		1,513,730			5	%		(156,581	)		(10	)%
Parts		107,762			0.5	%		185,730			0.6	%		(77,968	)		(42	)%
Diesel engines		6,258,070			28	%		8,976,148			29	%		(2,718,078	)		(30	)%
Generator sets		8,784,491			39	%		5,622,861			19	%		3,161,630			56	%
Accessories		37,628			0.2	%		106,700			0.4	%		(69,072	)		(65	)%
Less: sales tax		(10,521	)		-			(7,983	)		-			(2,538	)	32		%
Total		22,708,137			100	%		30,138,909			100	%		(7,430,772	)		(25	)%

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Our revenues decreased by 25%, or $7,430,772, to $22,708,137 for the three months ended September 30, 2011 from $30,138,909 for the three months ended September 30, 2010. This decrease was primarily attributable to a decrease in sales of our multi-cylinder pumps, which decreased by 54% and accounted for 21% of the total revenues for the three months ended September 30, 2011.

Our revenues declined primarily as a result of our reduction in the production of our older style products. Since high-end products with greater power are becoming the focus products of the diesel engine industry in the PRC, we adjusted our product structure to introduce more products with greater engine power to accommodate this new trend. Additionally, the Chinese government implemented tighter monetary policies. For example, increases in lending interest rates have curtailed domestic spending which also adversely impacted the diesel engine market. Also, as a response to the declining market and the overall credit policy in China, we now impose stricter standards when we choose our customers. Although this has led to fewer sales, management believes that this strategy will lead to increased cash flow in the long-term.

Cost of Goods Sold

The principal component of our cost of goods sold is the cost of product sales, which is mainly comprised of the cost of direct materials. The following table sets forth a breakdown of our cost of goods sold by product for the three months indicated:

	For the Three Months Ended September 30,
	2011					2010					Comparisons
	Amount		% of Cost of Sales			Amount		% of Cost of Sales			Change in Amount			Change in %
	$					$					$
Costs of Goods Sold:
Electric pumps		1,005,270		5	%		2,255,677		9	%		(1,250,407	)		(55	)%
Multi-cylinder pumps		3,344,493		18	%		7,397,716		29	%		(4,053,223	)		(55	)%
Single-cylinder pumps		115,751		1	%		354,390		1	%		(238,639	)		(67	)%
Fuel muzzles		1,033,009		5	%		1,337,271		5	%		(304,262	)		(23	)%
Parts		99,054		1	%		181,340		1	%		(82,286	)		(45	)%
Diesel engines		5,239,068		28	%		8,549,330		33	%		(3,310,262	)		(39	)%
Generator sets		7,885,005		42	%		5,305,116		21	%		2,579,889			49	%
Accessories		35,417		0.2	%		99,226		0.4	%		(63,809	)		(64	)%
Sales warranty		127,300		1	%		132,098		0.52	%		(4,798	)		(4	)%
Total		18,884,367		100	%		25,612,164		100	%		(6,727,797	)		(26	)%

Our cost of goods sold decreased by 26%, or $6,722,999, to $18,757,067 for the three months ended September 30, 2011 from $25,480,066 for the three months ended September 30, 2010. This decrease was in line with the decrease in our revenues for the same period.

Gross Profit and Gross Margin

Gross profit is equal to revenues less cost of goods sold. Gross margin is equal to gross profit divided by revenues. The table below sets forth a breakdown of our gross profit and gross margin by revenue source for the three months indicated:

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	For the Three Months Ended September 30,
	2011					2010					Comparisons
	Amount		Gross Margin			Amount		Gross Margin			Change in Amount			Change in Gross Margin
	$					$					$
Gross Profit and Gross Margin:
Electric pumps		344,021		25	%		778,917		26	%		(434,896	)		1	%
Multi-cylinder pumps		1,363,436		29	%		2,849,345		28	%		(1,485,909	)		1	%
Single-cylinder pumps		587		1	%		105,678		23	%		(105,091	)		(22	)%

	For the Three Months Ended September 30,
	2011					2010						Comparisons
	Amount			Gross Margin		Amount			Gross Margin			Change in Amount			Change in Gross Margin
	$					$						$
Fuel muzzles		324,140		24	%		176,459			12	%		147,681			12	%
Parts		8,707		8	%		4,390			2	%		4,317			6	%
Diesel engines		1,019,001		16	%		426,818			5	%		592,183			11	%
Generator sets		899,487		10	%		317,745			6	%		581,742			4	%
Accessory		2,211		6	%		7,474			7	%		(5,263	)		(1	)%
Less: sales tax		(10,521	)	-			(7,983	)		-			(2,538	)		-
Sales warranty		(127,300	)	-			(132,098	)		-			4,798			-
Total		3,823,770		17%			4,526,745			15	%		(702,975	)		(2	)%

Our gross profit decreased by 16%, or $702,975, to $3,823,770 for the three months ended September 30, 2011 from $4,526,745 for the three months ended September 30, 2010. This decrease was primarily due to a decrease in revenues which was mainly due to the reduction of our sales of multi-cylinder pumps. The gross profit derived from multi-cylinder pumps decreased by 52%, or $1,485,909, to $1,363,436 for the three months ended September 30, 2011 from $2,849,345 for the three months ended September 30, 2010. Meanwhile, the gross margin increased from 15% to 17% due to the Company’s adjusted product mix by introducing more products with higher gross margins and reducing the production and sales scale of products of older style diesel engines and generator sets with lower gross margins.

Selling and Marketing Expenses

Our selling and marketing expenses primarily include sales commission fees, payroll, travel costs and freight fees. Our selling and marketing expenses accounted for 2% of our revenues for the three months ended September 30, 2011. Selling and marketing expenses decreased by 62%, or $679,628, to $420,980 for the three months ended September 30, 2011 from $1,100,608 for the three months ended September 30, 2010. This decrease was primarily due to the decline in sales commission fees in connection with the decrease in revenues.

General and Administrative Expenses

Our general and administrative expenses consist primarily of bad debt provisions, bonuses, consulting fees, payroll, legal consulting fees, entertainment fees, office general expenses, labor insurance fees, business travel fees, deprecation, transportation fees, land usage taxes, welfare fees and land use rights amortization.

Our general and administrative expenses were approximately 1% of revenues, which has remained stable from the three months ended September 30, 2010.

Income from Operations

As a result of the foregoing, our income from operations increased by 3%, or $86,427, to $3,186,542 for the three months ended September 30, 2011 from $3,100,115 for the three months ended September 30, 2010.

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Interest Expense, Net

Our financing costs primarily include interest on short-term loans, notes payable and miscellaneous bank charges.

For the three months ended September 30, 2011 and 2010, interest expense amounted to $43,617 and $141,090 and represented 0.19% and 0.47% of our revenues, respectively. The decrease in interest expense, net was mainly due to the increase in interest income of $78,972 resulting from the notes receivable to unrelated companies for the three months ended September 30, 2011.

Other Income, Net

Other income was $12,792 for the three months ended September 30, 2011 compared to other income of $134,603 for the three months ended September 30, 2010.

Other income for the three months ended September 30, 2011 primarily includes gain on settlement of accounts payable for fixed assets of $4,955. Other expenses primarily include miscellaneous expenses of $365.

Exempted Value Added Tax

To honor our on-going contributions to the local economy and our achievement of becoming a public company in the United States, the local tax bureau exempted our output VAT payable of $3,231,156, which was recorded as exempted value added tax in the accompanying condensed consolidated statements of income and comprehensive income for the three months ended September 30, 2010.

Income Tax Expense

Our income tax expense decreased by 10%, or $90,710, to $777,697 for the three months ended September 30, 2011 from $868,407 for the three months ended September 30, 2010. On March 16, 2007, the National People’s Congress of China approved the Corporate Income Tax Law of the People’s Republic of China (the “new CIT law”), which went into effective on January 1, 2008. In accordance with the relevant tax laws and regulations of PRC, the applicable corporate income tax rate for Hengyuan, Jinma and Huaxin is 25%. However, prior to January 2011, Jinma and Huaxin were defined by the local tax bureau as tax payers subject to the “Verification Collection” method, according to which the amount of income taxes paid is determined by the local tax bureau based on certain criteria instead of applying the CIT rate of 25%, which is much smaller than the result from the normal computation by applying the CIT rate of 25%.

The consolidated effective tax rate for the Company in 2011 increased to 24.6% from 13.7% in 2010, which is mainly attributable to the change of the income tax computation method of Jinma and Huaxin from the favorable “Verification Collection” method to the normal approach by applying the income tax rate of 25%.

Net Income

Primarily as a result of the foregoing, our net income decreased by 56%, or $3,078,357, to $2,378,020 for the three months ended September 30, 2011 from $5,456,377 for the three months ended September 30, 2010.

Liquidity and Capital Resources

We generally finance our operations through our operating profit and borrowings from banks. During the reporting periods, we arranged a number of bank loans to satisfy our financing needs. As of the date of this Report, we have not experienced any difficulty in raising funds through bank loans, and we have not experienced any liquidity problems in settling our payables in the normal course of business and repaying our bank loans when they are due. We believe that the Company has adequate funds and capital with respect to conducting its business over the next twelve months.

The following table sets forth a summary of our cash flows for the periods indicated:

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	Three Months ended September 30,
	2011			2010
	$			$

Net cash provided by operating activities		8,928,416			1,432,334
Net cash used in by investing activities		(10,819,021	)		(2,035,040	)
Net cash provided by (used in) financing activities		53,685			(36,746	)
Net decrease increase in cash and cash equivalents		(1,836,920	)		(639,452	)
Effect of exchange rate changes on cash		860,132			940,749
Cash and cash equivalents at beginning of period		4,292,507			3,399,360
Cash and cash equivalents at end of period		3,315,719			3,700,657

We believe that the level of financial resources is a significant factor for our future development and accordingly, we may determine from time to time to raise capital through private debt or equity financing to strengthen the Company’s financial position, to expand our facilities and to provide us with additional flexibility to take advantage of business opportunities. No assurances can be given that we will be successful in raising such additional capital on terms acceptable to us.

Operating Activities

Net cash provided by/used in operating activities primarily consists of net income, as adjusted by bad debt expense, depreciation and amortization, deferred income taxes, gain or loss on disposal of property, and changes in operating assets and liabilities including accounts receivable, prepayments, deposits and other receivables, amounts due from employees and related parties, inventories, account payable, notes payable, advances from customers, other payables and accrued liabilities and income taxes payable.

Net cash provided by operating activities was $8,928,416 for the three months ended September 30, 2011, which was primarily attributable to our net income of $2,378,020, adjusted by an decrease in accounts receivable of $12,094,227, an increase in accounts payable of $1,042,980, an increased in value added tax payable of $3,552,216, an increase in taxes payable of $1,188,077 and an increase in customer deposits of $422,050, offset by an increase in inventories of $9,694,104 and an increase in prepayments for goods of $1,840,593. In comparison with the same period last year, net cash provided by operating activities increased by $7,496,082 from $1,432,334 for the three months ended September 30, 2010. The increase was primarily attributable to significantly decreased accounts receivable as a result of the decline in the overall demand from the market due to the tightened credit policy in China offset by the increase in inventories to prepare for the production in the upcoming peak season.

Investing Activities

Net cash used in investing activities primarily consists of purchases of plant and equipment, purchases of construction in progress, proceeds from disposal of fixed assets, proceeds from disposition of discontinued operation, reverse merger and notes receivable.

Net cash used in investing activities was $10,819,021 for the three months ended September 30, 2011, which is primarily attributable to repayment of notes receivable of $15,445,201, offset by issuances of notes receivable of $26,063,170. In comparison with the same period last year, net cash used in investing activities increased by $8,783,981 from $2,035,040 for the three months ended September 30, 2010. The increase was primarily attributable the increase in notes receivable. Due to the excellent sales performance in the year ended June 30, 2011, significant amount of bank acceptance notes were collected in this quarter which caused the increase in net cash used in investing activities.

- 13 -

Financing Activities

Net cash provided by/used in financing activities primarily consists of proceeds from short-term loans, repayments of short-term loans, repayments of notes payable, proceeds from notes payable, repayment of long-term debt and a dividend paid.

Net cash provided by financing activities was $53,685 for the three months ended September 30, 2011, which is primarily attributable to proceeds from notes payable of $1,275,183 and proceeds from short-term loans of $937,002, offset by repayments of notes payable of $1,002,354, restricted cash of $219,144 and repayments of short-term loans of $937,002. Net cash used in financing activities was 36,746 for the three months ended September 30, 2010. Due to the stable general financing policy of the Company, the cash flow in financing activities does not fluctuate significantly as compared to the same period last year.

Working Capital

Our working capital was $78,617,442 for the three months ended September 30, 2011, as compared with $ 75,447,911 for the year ended June 30, 2011, which is primarily attributable to a decrease in cash and cash equivalents of $976,788, a decrease in accounts receivable of $12,103,310, an increase in inventories of $9,694,104 , an increase in notes receivable of $10,727,430 and an increase in prepayment for goods of $1,840,593, offset by an increase in accounts payable of $1,032,299, an increase in customer deposits of $422,049, an increase in notes payable of $311,235, an increase in income tax payable of $1,188,077 and an increase in value tax payable of $3,552,216.

We believe that we will generate sufficient cash during the next twelve months to fund our operations, service our debt and remain in a positive cash position based on anticipated revenues, which is received primarily in cash, and sources of short-term debt that we expect to be available to us. The Company also had cash flow from operations of approximately $8.9 million for the three months ended September 30, 2011. From time to time, the Company may explore new expansion opportunities and funding sources from which our management may consider seeking external funding and financing. There can be no assurance that we will be successful in renewing loans or obtaining new loans.

Contractual Obligations

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows.

The following tables summarize our contractual obligations as of September 30, 2011, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

	Payments Due by Period

	Total		Less than 1 year		Over 1 year
Contractual Obligations:
Bank Indebtedness	$	2,661,032	$	2,661,032	$	-
Notes payable		1,825,343		1,625,144		200,199
Total Contractual Obligations:	$	4,486,375	$	4,286,176	$	200,199

- 14 -

Bank indebtedness consists of secured and unsecured borrowings from Weifang Bank, China Construction Bank and Bank of China.

Notes payable includes loans from an unrelated individual and related individuals.

Off-Balance Sheet Commitments and Arrangements

Other than the arrangement described above, as of September 30, 2011, we do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions of foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is Subject to Special Considerations due to its Operations in the PRC

The Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. At the conclusion of the period ended September 30, 2011 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2011, our disclosure controls and procedures were effective and adequately designed to ensure that the information required to be disclosed by us in the reports we submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and that such information was accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, in a manner that allowed for timely decisions regarding required disclosure.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

- 15 -

(b) Changes in internal controls. There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, we are named as defendant in lawsuits in which claims are asserted against us. In our opinion, the liabilities, if any, which may ultimately result from such lawsuits, are not expected to have a material adverse effect on our financial position, results of operations or cash flows. As of September 30, 2011, there were no pending or outstanding material proceedings involving the Company or its subsidiaries, or any of their properties.

ITEM 1A. RISK FACTORS

Not required for a “smaller reporting company”.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the quarter ended September 30, 2011, the Company had no unregistered sales of equity securities.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

(a) Exhibits

EXHIBIT NO.	DESCRIPTION	LOCATION

2.1	Share Exchange Agreement, dated December 28, 2009, by and between the Company, Jolly Promise Limited and Welldone Pacific Limited	Incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K as filed with the SEC on December 29, 2009

3.1	Articles of Incorporation of the Company	Incorporated by reference to Exhibit 3.1 to the Company’s General Form for Registration of Securities on Form 10 as filed with the SEC on May 15, 2009

3.2	Amended and Restated Bylaws of the Company	Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K as filed with the SEC on September 21, 2010

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3.3	Memorandum and Articles of Association of Jolly Promise Limited, dated July 2, 2008	Incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K as filed with the SEC on December 29, 2009

3.4	Certificate of Incorporation of Jolly Promise Limited	Incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K as filed with the SEC on December 29, 2009

10.1	Stock Purchase Agreement between Shaun Carter and the company dated December 28, 2009	Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on December 29, 2009

14.1	Code of Business Conduct and Ethics	Incorporated by reference to Exhibit 14.1 to the Company’s Current Report on Form 8-K as filed with the SEC on September 21, 2010

16.1	Letter Regarding Change in Certifying Accountant	Incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K as filed with the SEC on February 9, 2010

21	List of Subsidiaries of the Company	Incorporated by reference to Exhibit 21 to the Company’s Current Report on Form 8-K as filed with the SEC on December 29, 2009

22	Published Report Regarding Matter Submitted to Vote of Security Holders Regarding Name Change of the Company	Incorporated by reference to the Company’s Current Report on Form 8-K as field with the SEC on April 28, 2010

31.1	Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Provided herewith

31.2	Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Provided herewith

32.1	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002	Provided herewith

32.2	Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002	Provided herewith

99.1	Audit Committee Charter	Incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K as filed with the SEC on September 21, 2010

99.2	Compensation Committee Charter	Incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K as filed with the SEC on September 21, 2010

99.3	Corporate Governance and Nominating Committee Charter	Incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K as filed with the SEC on September 21, 2010

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99.4	Related Person Transaction Policy	Incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K as filed with the SEC on September 21, 2010

99.5	Written Disclosure Policy	Incorporated by reference to Exhibit 99.5 to the Company’s Annual Report on Form 10-K as filed with the SEC on September 28, 2010

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 14, 2011	By:	/s/ Dianjun Liu
		Name: Dianjun Liu
		Its: President, Chief Executive Officer and Principal Executive Officer

Date: November 14, 2011	By:	/s/ Chenglin Wang
		Name: Chenglin Wang
		Its: Chief Financial Officer, and Principal Financial and Accounting Officer

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