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, 2010





OR





o       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 o





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





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





Large
      Accelerated Filer o
            Accelerated
      Filer o
            Non-Accelerated
      Filer o
            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  o 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 9, 2010, the registrant
had 60,000,000 shares of common stock, par value $0.001 per share, issued and
outstanding.







TABLE
OF CONTENTS





PAGEPART
      I FINANCIAL INFORMATION
              F-1ITEM
      1. FINANCIAL STATEMENTS
              F-1 -
      F-27ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
    OPERATION
              - 3
      -ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK
              -
      15 -ITEM
      4. CONTROLS AND PROCEDURES
              -
      16 -PART
      II OTHER INFORMATION
              -
      16 -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
              -
      17 -SIGNATURES
              -
      19 -EXHIBIT
      31.1
              31.1EXHIBIT
      31.2
              31.2EXHIBIT
      32.1
              32.1EXHIBIT
      32.2
              32.2




- 2
-




XINDE
TECHNOLOGY COMPANY


AND
SUBSIDIARIES
 
 CONSOLIDATED
FINANCIAL STATEMENTS
 
 FOR
THE THREE MONTHS ENDED
 
 SEPTEMBER
30, 2010 AND 2009
  (UNAUDITED)
  
  XINDE
TECHNOLOGY COMPANY
 
 AND
SUBSIDIARIES
  CONTENTS
 
 PAGES
              
              F-1
      - F-2
              
              CONDENSED
      CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2010 (UNAUDITED) AND JUNE
      30, 2010PAGES
              
              F-3
              
              CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE THREE
      MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)PAGES
              
              F-4
      - F-5
              
              CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER
      30, 2010 AND 2009 (UNAUDITED)PAGES
              
              F-6
      - F-27
              
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
      SEPTEMBER 30, 2010 AND 2009
(UNAUDITED)
  
 
 XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
  ASSETS
 
 September
      30,
              
              
              June
      30,2010
              
              
              2010(Unaudited)CURRENT
      ASSETSCash
      and cash equivalents
              
              $
              3,700,657
              
              
              $
              3,399,360Accounts
      receivable, net of allowance for doubtful accounts of
$808,968
                and
      $793,630 as of September 30, 2010 and June 30, 2010,
      respectively
              
              
              65,137,290
              
              
              
              60,473,007Inventories
              
              
              9,582,515
              
              
              
              5,584,317Notes
      receivable, including bank acceptance notes
              
              
              2,689,460
              
              
              
              628,133Prepayments
      for goods
              
              
              4,884,293
              
              
              
              3,822,120Prepaid
      expenses and other receivables
              
              
              83,210
              
              
              
              26,404Due
      from employees
              
              
              132,301
              
              
              
              131,400Deferred
      taxes
              
              
              -
              
              
              
              47,448Total
      Current Assets
              
              
              86,209,726
              
              
              
              74,112,189LONG-TERM
      ASSETSPlant
      and equipment, net
              
              
              3,034,287
              
              
              
              3,043,955Land
      use rights, net
              
              
              942,819
              
              
              
              948,504Construction
      in progress
              
              
              698,841
              
              
              
              685,222Deposit
      for land use right
              
              
              379,988
              
              
              
              373,821Deferred
      taxes
              
              
              137,633
              
              
              
              129,049Total
      Long-Term Assets
              
              
              5,193,568
              
              
              
              5,180,551TOTAL
      ASSETS
              
              $
              91,403,294
              
              
              $
              79,292,740
 
 See
accompanying notes to condensed consolidated financial statements
  F-1
 
 XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
  LIABILITIES AND
SHAREHOLDERS’ EQUITY
 
 September
      30,
              
              
              June
      30,2010
              
              
              2010(Unaudited)CURRENT
      LIABILITIESAccounts
      payable
              
              $
              7,360,466
              
              
              $
              4,850,579Short-term
      bank loans
              
              
              2,329,019
              
              
              
              2,878,712Customer
      deposits
              
              
              1,085,474
              
              
              
              497,206Notes
      payable, including related parties
              
              
              1,621,481
              
              
              
              1,014,987Income
      tax payable
              
              
              5,501,313
              
              
              
              4,990,163Other
      payables
              
              
              1,087,278
              
              
              
              1,041,766Value
      added tax payable
              
              
              8,560,781
              
              
              
              6,931,841Due
      to employees
              
              
              82,796
              
              
              
              98,550Due
      to related parties
              
              
              468,127
              
              
              
              413,136Accrued
      expenses and dividend payable
              
              
              581,162
              
              
              
              659,569Deferred
      taxes
              
              
              403,363
              
              
              
              -Total
      Current Liabilities
              
              
              29,081,260
              
              
              
              23,376,509LONG-TERM
      LIABILITIESNotes
      payable to related parties
              
              
              301,920
              
              
              
              326,298Total
      Long-Term Liabilities
              
              
              301,920
              
              
              
              326,298TOTAL
      LIABILITIES
              
              
              29,383,180
              
              
              
              23,702,807COMMITMENT
      AND CONTINGENCIESSHAREHOLDERS’
      EQUITYCommon
      stock, $0.001 par value; 160,000,000 shares authorized;
      60,000,000
                shares
      issued and outstanding at September 30, 2010 and June 30,
    2010
              
              
              60,000
              
              
              
              60,000Additional
      paid-in capital
              
              
              1,072,334
              
              
              
              1,072,334Retained
      earnings (the restricted portion is $204,069 at September 30, 2010 and
      June 30, 2010)
              
              
              55,587,580
              
              
              
              50,131,203Accumulated
      other comprehensive income
              
              
              5,300,200
              
              
              
              4,326,396TOTAL
      SHAREHOLDERS’ EQUITY
              
              
              62,020,114
              
              
              
              55,589,933TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
              
              $
              91,403,294
              
              
              $
              79,292,740
  See
accompanying notes to condensed consolidated financial statements
  F-2
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 CONDENSEDCONSOLIDATED STATEMENTS OF
INCOME AND
 COMPREHENSIVE
INCOME
 (UNAUDITED)
 
 Three
      Months EndedSeptember
      30,
                  2010
                
                
                September
      30,
                  2009REVENUES,
      NET
                
                $
                30,138,909
                
                
                $
                37,634,510COST
      OF GOODS SOLD
                
                
                (25,480,066
                )
                
                
                (31,642,335
                )GROSS
      PROFIT
                
                
                4,658,843
                
                
                
                5,992,175Selling
      and marketing
                
                
                1,232,706
                
                
                
                433,004General
      and administrative
                
                
                326,022
                
                
                
                293,212INCOME
      FROM OPERATIONS
                
                
                3,100,115
                
                
                
                5,265,959Interest
      expense, net
                
                
                (141,090
                )
                
                
                (106,323
                )Other
      income (expense), net
                
                
                134,603
                
                
                
                (5,263
                )Refundable
      value added tax
                
                
                3,231,156
                
                
                
                -INCOME
      FROM OPERATIONS BEFORE INCOME TAXES
                
                
                6,324,784
                
                
                
                5,154,373INCOME
      TAXES
                
                
                (868,407
                )
                
                
                (727,637
                )NET
      INCOME
                
                
                5,456,377
                
                
                
                4,426,736OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation gain
                
                
                973,804
                
                
                
                28,886OTHER
      COMPREHENSIVE INCOME
                
                
                973,804
                
                
                
                28,886COMPREHENSIVE
      INCOME
                
                $
                6,430,181
                
                
                $
                4,455,622WEIGHTED
      AVERAGE SHARES OUTSTANDING BASIC AND DILUTED
                
                
                60,000,000
                
                
                
                42,000,000NET
      INCOME PER COMMON SHARE, BASIC AND DILUTED
                
                $
                0.09
                
                
                $
                0.11
  See
accompanying notes to condensed consolidated financial statements
  F-3
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  Three
      Months EndedSeptember
      30,
                  2010
                
                
                September
      30,
                  2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                5,456,377
                
                
                $
                4,426,736Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization
                
                
                69,568
                
                
                
                58,222Provision
      for doubtful accounts
                
                
                2,218
                
                
                
                38,318Deferred
      taxes
                
                
                442,227
                
                
                
                (11,090
                )Net
      (gain) loss on settlement of accounts receivable and accounts payable for
      fixed assets
                
                
                (2,487
                )
                
                
                21,926(Increase)
      Decrease In:Accounts
      receivable
                
                
                (4,666,502
                )
                
                
                (15,599,021
                )Inventories
                
                
                (3,998,198
                )
                
                
                2,324,624Prepayments
      for goods
                
                
                (1,062,173
                )
                
                
                123,486Prepaid
      expenses and other receivables
                
                
                (56,808
                )
                
                
                (15,219
                )Due
      from employees
                
                
                (902
                )
                
                
                (403,676
                )Due
      from related parties
                
                
                -
                
                
                
                14,584Increase
      (Decrease) In:Accounts
      payable
                
                
                2,514,312
                
                
                
                1,975,591Other
      payables
                
                
                45,513
                
                
                
                (4,938
                )Value
      added tax payable
                
                
                1,628,940
                
                
                
                6,107,248Taxes
      payable
                
                
                511,150
                
                
                
                738,203Customer
      deposits
                
                
                588,268
                
                
                
                (65,190
                )Due
      to employees
                
                
                (15,754
                )
                
                
                (72,062
                )Due
      to related parties
                
                
                54,991
                
                
                
                (81,148
                )Accrued
      expenses
                
                
                (78,406
                )
                
                
                (80,495
                )Net
      cash provided by (used in) operating activities
                
                
                1,432,334
                
                
                
                (503,901
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of plant and equipment
                
                
                (6,660
                )
                
                
                (24,986
                )Purchases
      of construction in progress
                
                
                (2,287
                )
                
                
                (187
                )Notes
      receivable
                
                
                (2,026,093
                )
                
                
                (129,730
                )Net
      cash used in investing activities
                
                $
                (2,035,040
                )
                
                $
                (154,903
                )
  See
accompanying notes to condensed consolidated financial statements
  F-4
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (UNAUDITED)
   Three
      Months EndedSeptember
      30,
                2010
              
              
              September
      30,
                2009CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from short-term loans
              
              $
              294,971
              
              
              $
              2,631,125Repayments
      of short-term loans
              
              
              (884,914
              )
              
              
              (2,335,854
              )Repayments
      of notes payable
              
              
              (199,953
              )
              
              
              (914,715
              )Proceeds
      from notes payable
              
              
              753,150
              
              
              
              1,381,530Repayments
      of long-term debt
              
              
              -
              
              
              
              (76,505
              )Net
      cash (used in) provided by financing activities
              
              
              (36,746
              )
              
              
              685,581NET
      (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
              
              
              (639,452
              )
              
              
              26,777Effect
      of exchange rate changes on cash
              
              
              940,749
              
              
              
              29,384Cash
      and cash equivalents at beginning of period
              
              
              3,399,360
              
              
              
              127,576CASH AND CASH
      EQUIVALENTS AT END OF PERIOD
              
              $
              3,700,657
              
              
              $
              183,737
  SUPPLEMENTARY
      CASH FLOW INFORMATION:
  Income
      taxes paid
                
                $
                5,041
                
                
                $
                5,913Interest
      paid
                
                $
                95,433
                
                
                $
                110,229
 
 SUPPLEMENTAL
NON-CASH DISCLOSURES:
 
 1. 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 net book value of $1,938,
resulting in a gain of $2,487.
 
 2. During
the three months ended September 30, 2009, accounts receivable with a carrying
amount of $116,939 was settled by a fixed asset with a fair value of $95,013,
resulting in a loss of $21,926.
  See
accompanying notes to condensed consolidated financial statements
  F-5
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (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 to engage as a franchisee of certain restaurants in
the State of Idaho through its wholly owned subsidiary, Wasatch Food Services of
Idaho, Inc. ("Bajio"). On April 22, 2010, Wasatch Food Services, Inc. changed
its name to Xinde Technology Company (“Xinde”).
 
 Wasatch
was unsuccessful in developing Bajio into a profitable business. On December 28,
2009, Wasatch entered into a disposition agreement with Shaun Carter, an
individual. Pursuant to the agreement, the Company agreed to sell all of its
interest in Bajio in consideration of a payment of $1,000 in addition to the
assumption by Bajio of liabilities $225,546 of Wasatch resulting in a gain of
$148,498. This transaction was completed on December 28, 2009.
 
 Jolly
Promise Limited (“JPL”) was incorporated under the laws of the British Virgin
Islands (“BVI”) on July 2, 2008 and is a wholly-owned subsidiary of Welldone
Pacific Limited. (“WPL”), a BVI registered company.
 
 On August
6, 2009, JPL entered into a share exchange agreement with the shareholder of
Hong Kong Sindhi Fuel Injection Co., Ltd. (“HKSIND”), a company incorporated in
Hong Kong. Pursuant to the share exchange agreement, JPL acquired all of the
issued and outstanding common stock of HKSIND. As a result of the share
exchange, HKSIND became a wholly-owned subsidiary of JPL.
 
 On
October 24, 2009, HKSIND established a new company, Weifang Huajie Fuel
Injection System Co., Ltd. (“Huajie”), as the sole shareholder under the laws of
PRC.
 
 Weifang
Xinde Fuel Injection System Co., Ltd. (“Weifang Xinde”) is an investment holding
company. The principal activities of Xinde and its subsidiaries are the design,
development, manufacture, and commercialization of fuel injection pumps,
injectors, multi-cylinder diesel engines and small generator units for the
People’s Republic of China (the “PRC”) and overseas markets.
 
 On
November 13, 2009, all the shareholders of Weifang Xinde entered into a share
exchange agreement with Huajie to transfer all the shares of Xinde to Huajie for
$116,418 in cash. Huajie is a new company established under the laws of the PRC
solely by HKSIND, a company incorporated in Hong Kong, on October 24, 2009. As a
result of the share exchange, Xinde became a wholly-owned subsidiary of Huajie.
Huajie and Xinde only act as holding companies with no operations or expenses,
and therefore, the business of Huajie will continue to be that of Xinde’s
wholly-owned subsidiaries, Weifang Hengyuan Oil Pump & Oil Fitting Co., Ltd.
("Hengyuan"), Weifang Jinma Diesel Engine Co., Ltd. (“Jinma”) and Weifang Huaxin
Diesel Engine Co., Ltd. (“Huaxin”).
  F-6
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE
1 - ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
 
 On
December 28, 2009, Wasatch Food Services Inc. (“Wasatch”) executed a share
exchange agreement by and between Wasatch, Jolly Promise Ltd. (“JPL”) and
Welldone Pacific Limited., a British Virgin Islands Company which owns 100% of
JPL (the “JPL’s shareholder”). Under the share exchange
agreement, Wasatch issued 42,000,000 shares of its common stock,
representing 70% of the Wasatch’s issued and outstanding common stock after
giving effect to the cancellation of 13,038,692 shares on December 28,
2009, to JPL’s shareholder in exchange for 100% of the common stock of JPL.
Prior to the transaction, Wasatch had a total of 18,000,000 shares of common
stock issued and outstanding. After the closing of the transaction,
Wasatch had a total of 60,000,000 shares of common stock issued and
outstanding, with JPL’s shareholder owning 70% of the total issued and
outstanding shares of Wasatch’s common stock, and the balance held by those who
held shares of Wasatch’s common stock prior to the closing of the exchange. This
share exchange transaction resulted in JPL’s shareholder obtaining a majority
voting interest in Wasatch.
 
 After the
share exchange, JPL and its wholly-owned subsidiaries became a wholly-owned
subsidiary of Wasatch, and Weifang Xinde became the principal operating
subsidiary. The exchange transaction was accounted for as a reverse acquisition
in accordance with ASC 805-10, Business Combinations. The acquisition is
accounted for as the recapitalization of Xinde. Accordingly, the consolidated
statements of income include the results of operations of Xinde and its
subsidiaries from July 1, 2009 and 2008, and the results of operations of
Wasatch from the acquisition date through June 30, 2010.
 
 Details
of Xinde and its subsidiaries (the “Company”) as of September 30, 2010 are as
follows:
  Name
              
              Place
      and Date of
                Establishment/
      Incorporation
              
              Relationships
              
              Principal
      ActivitiesJolly
      Promise Ltd. (“JPL”)
              
              British
      Virgin Island
                July
      2, 2008
              
              Wholly-owned
      subsidiary of Xinde
              
              Investment
      holding companyH.K.
      Sindhi Fuel Injection Co., Ltd (“HKSIND”)
              
              Hong
      Kong, PRC,
                June
      7, 2004
              
              Wholly-owned
      subsidiary of JPL
              
              Investment
      holding companyWeifang
      Huajie Fuel Injection Co., Ltd.
                (“Huajie”)
              
              Shandong,
      PRC
                October.
      24 2009
              
              Wholly-owned
      subsidiary of HKSIND
              
              Investment
      holding company
  F-7
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE
1 - ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)
 
 Name
              
              Place
      and Date of
                Establishment/
      Incorporation
              
              Relationship
              
              Principal
      ActivitiesWeifang
      Xinde Fuel Injection System Co., Ltd.
                (“Weifang
      Xinde”)
              
              Shandong,
      PRC
                October
      29, 2007
              
              Wholly-owned
      subsidiary of Huajie
              
              Investment
      holding companyWeifang
      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 injectorsWeifang
      Jinma Diesel Engine Co., Ltd. (“Jinma”)
              
              Shandong,
      PRC
                September
      19, 2003
              
              Wholly-owned
      subsidiary of Weifang Xinde
              
              Manufacture
      and sale of multi-cylinder diesel engine and small generating
      unitsWeifang
      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.
 
 NOTE 2 –BASIS OF
PRESENTATION
 
 The
Company’s unaudited condensed consolidated financial statements for the three
months ended September 30, 2010 and 2009 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, 2010 was derived from the a udited
consolidated financial statements included in the Form 10-K. These interim
condensed consolidated financial statements should be read in conjunction with
that report.
  F-8
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE 3 –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.
 
 NOTE 4 –SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
 
 (a)
              Economic
      and Political Risks
                
                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.
                
                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-9
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 (b)
              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:
 
 ·
  ·
  ·
 
 The
assets and liabilities measured at fair value on a recurring basis subject to
the disclosure requirements of ASC 820-10 as of September 30, 2010 are as
follows:
 
 Fair Value Measurements at Reporting Date
      UsingCarrying
      Value as of
                September
      30,
                2010
              
              
              Quoted
                Prices
      in
                Active
      Markets
                for
      Identical
                Assets
                (Level
      1)
              
              
              Significant
      Other
                Observable
                Inputs
                (Level
      2)
              
              
              Significant
                Unobservable
      Inputs
                (Level
      3)Bank
      acceptance notes
              
              $
              2,540,972
              
              
              $
              2,540,972
              
              
              $
              -
              
              
              $
              -Long-term
      notes payable
              
              $
              301,920
              
              
              $
              -
              
              
              $
              301,920
              
              
              $
              -
 
 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,
2010.
 
 (c)
              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.
  F-10
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 (d)
              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.
 
 (e)
              Prepayments
 
 Prepayments
represent cash paid in advance to suppliers for purchases of raw
materials.
 
 (f)
              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
      yearsMachinery
              10
      yearsMotor vehicles
              5
      yearsOffice
      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.
 
 (g)
              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.
 
 (h)
              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 right granted to the
Company is being amortized using the straight-line method over the lease term of
fifty years.
  F-11
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 (i)
              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, 2010 and June
30, 2010.
 
 (j)
              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 consolidated statements of
income and comprehensive income in the period in which sales is recognized.
During the three months ended September 30, 2010 and 2009, warranty expense
was $132,098 and $38,650, respectively, and is included in selling and marketing
expenses in the accompanying consolidated statements of income and comprehensive
income.
 (k)
                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, 2010
and 2009 are $12,293 and $5,725, respectively. All the retirement benefits
expenses are included in general and administrative expenses.
  F-12
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (l)
                  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,
                2010
              
              
              June
      30,
                2010
              
              
              September
      30,
                2009Period end
      RMB : US$ exchange rate
              
              
              6.6981
              
              
              
              6.8086
              
              
              
              -Period
      average RMB : US$ exchange rate
              
              
              6.7803
              
              
              
              -
              
              
              
              6.8412
 
 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.
 (m)
                  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.
 (n)
                  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, 2010 and 2009.
 (o)
                  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. The sales of the Company
outside of the PRC were insignificant for the three months ended September 30,
2010 and 2009.
  F-13
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 (p)
                    Recent
      Accounting
  Pronouncements
 
 There are
no new accounting pronouncements that have not been adopted by the Company that
would have a material effect on the condensed consolidated financial statements
as of the three months ended September 30, 2010.
 
 NOTE 5 –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
              
              
              Accounts
      ReceivableSeptember
      30,
              
              
              September
      30,
              
              
              June
      30,Major
      Customers
              
              2010
              
              
              2009
              
              
              2010
              
              
              2010Company
      A
              
              
              3.1
              %
              
              
              -
              
              
              
              2.7
              %
              
              
              -Company
      B
              
              
              3.0
              %
              
              
              -
              
              
              
              2.7
              %
              
              
              -Company
      C
              
              
              2.9
              %
              
              
              -
              
              
              
              2.8
              %
              
              
              -Company
      D
              
              
              2.7
              %
              
              
              -
              
              
              
              2.9
              %
              
              
              -Company
      E
              
              
              2.6
              %
              
              
              -
              
              
              
              3.7
              %
              
              
              -Company
      F
              
              
              -
              
              
              
              5.4
              %
              
              
              -
              
              
              
              0.2
              %Company
      G
              
              
              -
              
              
              
              4.5
              %
              
              
              -
              
              
              
              1.4
              %Company
      H
              
              
              -
              
              
              
              3.6
              %
              
              
              -
              
              
              
              2.0
              %Company
      I
              
              
              -
              
              
              
              3.0
              %
              
              
              -
              
              
              
              1.8
              %Company
      J
              
              
              -
              
              
              
              2.5
              %
              
              
              -
              
              
              
              1.0
              %
 
 (b)  Suppliers
 
 The
Company’s major suppliers accounted for the following percentages of total
purchases and accounts payable as follows:
 
 Purchases
                Three
      Months Ended
              
              
              Accounts
      PayableSeptember
      30,
              
              
              September
      30,
              
              
              June
      30,Major
      Suppliers
              
              2010
              
              
              2009
              
              
              2010
              
              
              2010Company
      K
              
              
              10.7
              %
              
              
              6.3
              %
              
              
              -
              
              
              
              -Company
      L
              
              
              5.9
              %
              
              
              4.1
              %
              
              
              -
              
              
              
              -Company
      M
              
              
              5.6
              %
              
              
              6.9
              %
              
              
              1.3
              %
              
              
              0.5
              %Company
      N
              
              
              4.2
              %
              
              
              2.7
              %
              
              
              -
              
              
              
              -Company
      O
              
              
              3.1
              %
              
              
              -
              
              
              
              0.1
              %
              
              
              -Company
      P
              
              
              -
              
              
              
              2.5
              %
              
              
              -
              
              
              
              0.2
              %
  F-14
 
 XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE 6 –INVENTORIES
  Inventories
are summarized as follows:
 
 September
      30,
                2010
              
              
              June
      30,
                2010(Unaudited)Raw
      materials
              
              $
              3,732,316
              
              
              $
              2,798,967Work-in-progress
              
              
              909,597
              
              
              
              889,937Finished
      goods
              
              
              4,940,602
              
              
              
              1,895,413Total
      inventories
              
              $
              9,582,515
              
              
              $
              5,584,317
  NOTE 7 –NOTES
RECEIVABLE
 
 Notes
receivable from unrelated individuals consist of the following:
 
 September
      30,
                2010
              
              
              June
      30,
                2010(Unaudited)Notes
      receivable from unrelated individuals:Due
      December 24, 2010, interest at 10% per annum
              
              $
              2,904
              
              
              $
              2,857Due
      December 24, 2010, interest at 10% per annum
              
              
              22,394
              
              
              
              22,031Due
      May 16, 2011, interest at 6% per annum
              
              
              123,190
              
              
              
              114,560Subtotal
              
              $
              148,488
              
              
              $
              139,448Bank
      acceptance notes (aggregated by month of maturity):Due
      September, 2010 (Settled on its due date)
              
              
              -
              
              
              
              29,375Due
      October, 2010 (Settled on its due date)
              
              
              1,130
              
              
              
              29,375Due
      November, 2010
              
              
              -
              
              
              
              205,220Due
      December, 2010
              
              
              604,649
              
              
              
              224,715Due
      January, 2011
              
              
              383,691
              
              
              
              -Due
      February, 2011
              
              
              1,206,893
              
              
              
              -Due
      March, 2011
              
              
              187,848
              
              
              
              -Due
      September, 2011
              
              
              156,761
              
              
              
              -Subtotal
              
              
              2,540,972
              
              
              
              488,685Total
              
              $
              2,689,460
              
              
              $
              628,133
 
 Notes
receivable from unrelated individuals are unsecured.
  F-15
 
 XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE 7 –DUE
FROM/TO RELATED PARTIES
 
 (I)
              Due
      To Related Parties
 
 September
      30,
                2010
              
              
              June
      30,
                2010(Unaudited)Jin
      Xin
              
              (a)
              
              $
              49,566
              
              
              $
              -Liu
      Dianjun
              
              (b)
              
              
              386,944
              
              
              
              342,994Li
      Zengshan
              
              (c)
              
              
              31,617
              
              
              
              23,612Zhang
      Qixiu
              
              (d)
              
              
              -
              
              
              
              32,312Jin
      Wei
              
              (e)
              
              
              -
              
              
              
              14,218Total
      due to related parties
              
              
              
              $
              468,127
              
              
              $
              413,136
 
 (II)
              Due
      From Employees
 
 September
      30,
                2010
              
              
              June
      30,
                2010(Unaudited)Current
              
              
              
              $
              132,301
              
              
              $
              131,400Total
      due from employees
              
              (f)
              
              $
              132,301
              
              
              $
              131,400
 
 (III)
              Due
      To Employees
 
 September
      30,
                2010
              
              
              June
      30,
                2010(Unaudited)Current
              
              
              
              $
              82,796
              
              
              $
              98,550Total
      due to employees
              
              (g)
              
              $
              82,796
              
              
              $
              98,550
  F-16
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE 8 –DUE
FROM/TO RELATED PARTIES (CONTINUED)
 
 (a)
              Jin
      Xin is the shareholder of the Company and the chairman of Jinma, a
      subsidiary of the Company. The payable balance represented prepayments for
      goods paid by Jin Xin 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 advances 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.
 
 (d)
              Zhang
      Qixiu is the mother of Jin Xin, also see (a). The balance represented
      business related expenses paid by Zhang Qixiu on behalf of the Company,
      which was interest-free, unsecured and had no fixed repayment
      term.
 
 (e)
              Jin
      Wei is the brother of Jin Xin, also see (a). The balance represented
      advances from Jin Wei, which were interest-free, unsecured and had no
      fixed repayment terms.
 
 (f)
              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.
 
 (g)
              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.
  F-17
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE 9 –LAND USE
RIGHTS, NET
 
 Land use
rights consist of the following:
 
 September
      30,
                2010
              
              
              June
      30,
                2010(Unaudited)Cost
      of land use rights
              
              $
              1,087,939
              
              
              $
              1,087,939Less:
      Accumulated amortization
              
              
              (145,120
              )
              
              
              (139,435
              )Land
      use rights, net
              
              $
              942,819
              
              
              $
              948,504
 
 Amortization
expense for the three months ended September 30, 2010 and 2009 was $5,685 and
$5,634, respectively.
 
 Amortization
expense for the next five years and thereafter is as follows:
 
 2011
      (nine months)
              
              $
              17,0562012
              
              
              22,7412013
              
              
              22,7412014
              
              
              22,7412015
              
              
              22,741Thereafter
              
              
              834,799Total
              
              $
              942,819
  Two land
use rights with an aggregate net book value of $52,337 and $51,880 at September
30, 2010 and June 30, 2010, respectively, were registered in the names of two
management members 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 calendar year 2010. These two land use
rights were pledged as collateral for bank loans borrowed by Li Zengshan who is
the shareholders of the Company in the amounts of $356,851. Also see Note
15.
 
 At
September 30, 2010 and June 30 2010, the net book value of a land use right
pledged as collateral for bank loans was $159,470 and $514,662, respectively.
Also see Note 11.
  F-18
 
 XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE 10 –PLANT AND
EQUIPMENT, NET
  Plant and
equipmentconsist
of the following:
 
 September
      30,
                2010
              
              
              June
      30,
                2010(Unaudited)At
      cost:Buildings
              
              $
              2,864,866
              
              
              $
              2,818,371Machinery
      and equipment
              
              
              1,105,225
              
              
              
              1,082,065Office
      equipment
              
              
              52,230
              
              
              
              50,299Motor
      vehicles
              
              
              433,042
              
              
              
              430,9814,455,363
              
              
              
              4,381,716Less
      : Accumulated depreciationBuildings
              
              
              (460,075
              )
              
              
              (429,115
              )Machinery
      and equipment
              
              
              (649,348
              )
              
              
              (611,728
              )Office
      equipment
              
              
              (37,733
              )
              
              
              (35,789
              )Motor
      vehicles
              
              
              (273,920
              )
              
              
              (261,129
              )(1,421,076
              )
              
              
              (1,337,761
              )Plant
      and equipment, net
              
              $
              3,034,287
              
              
              $
              3,043,955
 
 Depreciation
expense for the three months ended September 30, 2010 and 2009 was $63,883 and
$52,588 respectively.
 
 At
September 30, 2010, the legal title to five motor vehicles and two office
buildings with a total net book value of $68,246 and $640,379 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 calendar
year 2010.
 
 Two
office buildings were pledged as collateral for bank loans borrowed by Li
Zengshan and Liu Dianjun (both are shareholder of the Company) in the amounts of
$356,851 and $42,581, respectively. Also see Note 15.
 
 Application
for ownership certificates of eleven buildings with an aggregate net book value
of $1,071,714 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 calendar
year 2010.
  F-19
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE 11 –SHORT-TERM BANK LOANS
  Short-term
bank loansconsist
of the following:
 
 September
      30,
                2010
              
              
              June
      30,
                2010(Unaudited)Rural
      Credit Cooperative:Monthly
      interest only payments at 6.89% per annum, due December 1, 2010,
      guaranteed by Weifang Tongxin Precision Rubber Products Co., Ltd. and
      Weifang Dachang Energy-Saving Equipment Co., Ltd.
              
              $
              89,578
              
              
              $
              88,124Monthly
      interest only payments at 7.52% per annum, due December 30, 2010,
      guaranteed by Weifang Jinma Diesel Engine Co., Ltd. and Weifang Dachang
      Energy-Saving Equipment Co., Ltd.
              
              
              447,888
              
              
              
              440,619Bank
      of CommunicationsMonthly
      interest only payments at 5.84% per annum, due July 23, 2010, secured by a
      land use right owned by the Company and guaranteed by a shareholder, Liu
      Dianjun.Also
      see Note 8. (Repaid on its due date)
              
              
              -
              
              
              
              146,873
  F-20
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE 11 –SHORT-TERM BANK LOANS (CONTINUED)
 
 September 30,
      2010
              
              
              June
      30,
                2010(Unaudited)Weifang
      BankMonthly
      interest only payments at 7.43% per annum, due July 27, 2010, guaranteed
      by Weifang Hengyuan Oil Pump & Oil Fitting Co., Ltd. (Repaid on its
      due date)
              
              $
              -
              
              
              $
              587,492Monthly
      interest only payments at 7.43% per annum, due July 27, 2011, guaranteed
      by Weifang Hengyuan Oil Pump & Oil Fitting Co., Ltd.
              
              
              597,185
              
              
              
              -Monthly
      interest only payments at 7.97% per annum, due October 19, 2010,
      guaranteed by Weifang Hengyuan Oil Pump & Oil Fitting Co., Ltd.
      (Repaid on its due date)
              
              
              298,592
              
              
              
              293,746Monthly
      interest only payments at 7.43% per annum, due April 10, 2011, guaranteed
      by Weifang Hengyuan Oil Pump & Oil Fitting Co., Ltd.
              
              
              298,592
              
              
              
              293,746China
      Construction Bank:Monthly
      interest only payments at 5.84% per annum, due September 2, 2010, borrowed
      by Hengyuan, guaranteed by a shareholder, Liu Dianjun and Weifang Xinde
      Fuel Injection System Co., Ltd. (Repaid on its due date)
              
              
              -
              
              
              
              734,365Monthly
      interest only payments at 5.84% per annum, due July 29, 2011, borrowed by
      Hengyuan, secured by a land use right owned by the
Company.
              
              
              298,592
              
              
              
              -Bank
      of China:Monthly
      interest only payments at 5.84% per annum, due February 10, 2011,
      guaranteed by Weifang Hengyuan Oil Pump & Oil fitting Co., Ltd. and by
      a shareholder, Li Zengshan, and his wife, Li Guimei
              
              
              298,592
              
              
              
              293,747Total
              
              $
              2,329,019
              
              
              $
              2,878,712
 
 Interest
expense for short-term bank loans for the three months ended September 30, 2010
and 2009 was $110,523 and $114,134, respectively.
  F-21
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE 12 –NOTES
PAYABLE, INCLUDING RELATED PARTIES
 
 Notes
payable consist of the following:
 
 September 30,
                  2010
                
                
                June
      30,
                  2010(Unaudited)Notes
      payable to an unrelated individual:Due
      September 26, 2010, interest at 6% per annum
                
                
                
                $
                -
                
                
                $
                84,505Due
      December 24, 2010, interest at 10% per annum
                
                
                
                
                -
                
                
                
                98,308Due
      May 4, 2011, interest at 14.36% per annum
                
                
                
                
                379,212
                
                
                
                373,058Due
      May 4, 2011, interest at 12% per annum
                
                
                
                
                143,324
                
                
                
                140,998Due
      August 4, 2011, interest at 14.40% per annum
                
                
                
                
                373,240
                
                
                
                -Due
      October 8, 2010, interest free (Settled on its due date)
                
                
                
                
                118,690
                
                
                
                -Due
      October 8, 2010, interest free (Settled on its due date)
                
                
                
                
                149,296
                
                
                
                -Due
      June 30, 2011, interest at 10.00% per annum
                
                
                
                
                31,592
                
                
                
                -Due
      December 24, 2010, interest at 10.00% per annum
                
                
                
                
                98,345
                
                
                
                -Subtotal
                
                
                
                
                1,293,699
                
                
                
                696,869Notes
      payable to related individuals:Due
      July 1, 2010, interest at 7.28% per annum
                  (Settled
      on its due date)
                
                (b)
                
                
                -
                
                
                
                77,843Due
      December 24, 2010, interest at 10% per annum (Settled in
      advance)
                
                (b)
                
                
                -
                
                
                
                95,467Due
      May 2, 2011, interest at 6% per annum
                
                (b)
                
                
                31,755
                
                
                
                31,240Due
      June 30, 2011, interest at 6.91% per annum
                
                (b)
                
                
                83,695
                
                
                
                80,930Due
      June 30, 2011, interest at 5.76% per annum (Settled in
      advance)
                
                (a)
                
                
                -
                
                
                
                32,638Due
      June 30, 2011, interest at 10% per annum
                
                (b)
                
                
                82,113
                
                
                
                -Due
      December 24, 2010, interest at 10% per annum
                
                (b)
                
                
                97,042
                
                
                
                -Due
      June 30, 2011, interest at 5.84% per annum
                
                (a)
                
                
                33,177
                
                
                
                -Subtotal
                
                
                
                
                327,782
                
                
                
                318,118Total
                
                
                
                $
                1,621,481
                
                
                $
                1,014,987
  (a)
              The
      notes are or were due to Mr. Liu Dianjun, a shareholder and officer of the
      Company. The current balance represents a loan to the Company which is
      unsecured.
 
 (b)
              This
      note is 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-22
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE 13 –LONG
-TERM NOTES PAYABLE TO RELATED PARTIES
 
 Long-term
notes payable consists of the following:
  September
      30,
                2010
              
              
              June
      30,
                2010(Unaudited)Notes
      payable to related individuals:Due
      May 12, 2012, monthly interest payment is 5.76% per annum. Principal is
      repaid every month in 108 equal installments from May 15,
      2003.
              
              (a)
              
              
              -
              
              
              
              29,918Due
      August 4, 2014, monthly interest payment is 6.91% per annum. Principal is
      repaid every month in 60 equal installments from August 4,
      2009.
              
              (b)
              
              
              279,802
              
              
              
              296,380Due
      May 12, 2012, monthly interest payment is 5.84% per annum. Principal is
      repaid every month in 108 equal installments from May 15,
      2003.
              
              (a)
              
              $
              22,118
              
              
              $
              -Total
              
              
              
              $
              301,920
              
              
              $
              326,298
  (a)
                The
      current note is due to Mr. Liu Dianjun, a shareholder and officer of the
      Company. The balance represents a loan to the Company to support business
      operations.
 
 (b)
                This
      note is due to Mr. Li Zengshan, a shareholder and officer of the Company.
      The balance represents a loan to the Company to support business
      operations.
 Notes
payable to related individuals are unsecured.
 
 NOTE
14 – 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 is
25%.  In 2010 and 2009, 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%.
 
 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.
  F-23
 
 XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE 14 –TAXES
(CONTINUED)
 
 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, 2010, the Company does not have a liability for
unrecognized tax benefits.
 
 The
Company’s income tax expense for the three months ended September 30, 2010 and
2009 are summarized as follows:
 
 September
      30,
                2010
              
              
              September
      30,
                2009Current:Provision
      for CIT
              
              $
              426,180
              
              
              $
              738,727Deferred:Provision
      for CIT
              
              
              442,227
              
              
              
              (11,090
              )Income
      tax expense
              
              $
              868,407
              
              
              $
              727,637
 
 The
Company’s income tax expense differs from the “expected” tax expense for the
three months ended September 30, 2010 and 2009 (computed by applying the CIT
rate of 25% percent to income before income taxes) as follows:
 
 September
      30,
                2010
              
              
              September
      30,
                2009(Unaudited)Computed
      “expected” expense
              
              $
              1,581,196
              
              
              $
              1,288,593Permanent
      differences
              
              
              (379,138
              )
              
              
              (22,253
              )Favourable
      tax rates
              
              
              (333,651
              )
              
              
              (538,703
              )Income
      tax expense
              
              $
              868,407
              
              
              $
              727,637
  F-24
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE 14 –TAXES
(CONTINUED)
 
 The tax
effects of temporary differences that give rise to the Company’s net deferred
tax assets and liabilities as of September 30, 2010 and June 30, 2010 are as
follows:
 
 September
      30,
                2010
              
              
              June
      30,
                2010(Unaudited)Deferred
      tax assets:Current
      portion:Bad
      debt provision
              
              $
              24,573
              
              
              $
              24,174Expenses
              
              
              91,084
              
              
              
              76,720Subtotal
              
              $
              115,657
              
              
              $
              100,894
 
 Deferred
      tax liabilities:Current
      portion:Sales
      cut-off
              
              $
              (494,716
              )
              
              $
              (31,596
              )Others
              
              
              (24,304
              )
              
              
              (21,850
              )Subtotal
              
              
              (519,020
              )
              
              
              (53,446
              )Net
      deferred tax (liabilities) assets - current portion
              
              $
              (403,363
              )
              
              $
              47,448
 
 Deferred
      tax assets:Non-current
      portion:Depreciation
              
              $
              126,550
              
              
              $
              118,448Amortization
              
              
              11,083
              
              
              
              10,601Subtotal
              
              
              137,633
              
              
              
              129,049Net
      deferred tax assets - non-current portion
              
              
              137,633
              
              
              
              129,049Total
      net deferred tax (liabilities) assets
              
              $
              (265,730
              )
              
              $
              176,497
  F-25
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE 14 –TAXES
(CONTINUED)
 
 (b)  Tax
Holiday Effect
 
 For the
three months ended September 30, 2010 and 2009 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, 2010 and 2009.
 
 The pro
forma combined effects of the favorable tax rates available to the Company for
the three months ended September 30, 2010 and 2009 are as follows:
  For
      the Three Months Ended
                September 30,2010
              
              
              2009Tax
      holiday effect
              
              $
              (333,651
              )
              
              $
              (538,703
              )Basic
      net income per share effect
              
              $
              0.006
              
              
              $
              0.013
 
 (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.
 
 On
January 1, 2002, the export policy of VAT "Exemption, Credit and Refund" began
to apply to all exports by manufacture-based enterprises. In accordance with
this policy, exported goods are exempted from output VAT and the input VAT
charged for purchases of the raw materials, components and power consumed for
the production of the exported goods may be refunded. The refund rates of diesel
engine related products applicable to the Company are from 13% to
17%.
 
 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 income of $3,231,156 which was reflected in the
accompanying condensed consolidated statements of income and comprehensive
income for the three months ended September 30, 2010.
 
 The VAT
payable was $8,560,781 and $6,931,841 at September 30, 2010 and June 30, 2010,
respectively.
 
 F-26
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2010 AND 2009
 (UNAUDITED)
 
 NOTE 15 –CONTINGENCIES
 
 On May
15, 2003, Hengyuan entered into a guarantee contract to serve as guarantor for
the bank loans borrowed by Mr. Liu Dianjun, a shareholder and officer of the
Company, from Industrial and Commercial Bank of China with a guarantee amount of
$42,581. Under this guarantee contract, a land use right and an office
building of Hengyuan were pledged for the bank loans. (Also see Notes 9 and
10)
 
 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 $356,851. Under this guarantee contract, a land use right and an
office building of Hengyuan were pledged for the bank loans. (Also see Notes 9
and 10)
 
 NOTE
16 – COMMITMENT
 
 The
Company has a capital commitment of approximately $585,105 for the construction
of a new production line in connection with a new plant as of September 30,
2010.
  F-27




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 (f/k/a
Wasatch Food Services, Inc., 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 report. This report contains
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.





Prior
Operations of the Company





Xinde was incorporated as “Wasatch Food
Services, Inc.” in Nevada in December 2006 to engage as a franchisee of
BAJIO® Mexican
Grill restaurants in the State of Idaho. In January 2007, the Company was
assigned certain rights under an area development agreement with Bajio, LLC (the
franchisor) that granted the Company the right to develop four BAJIO®
restaurant locations in Southern Idaho through December 31, 2009. In
October 2007, the Company entered into its first franchise agreement in
Boise, Idaho and thereafter entered into a lease, furnished and equipped the
space and opened for business in November 2007. The Company failed to open
any additional BAJIO®
restaurants within the time periods set forth in the area development agreement
and lost its right to develop such additional restaurants. During this time and
up to December 28, 2009, the Company conducted its operations solely through its
wholly-owned subsidiary, Bajio.





The Company executed a purchase
agreement to sell Bajio following the consummation of the share exchange
transaction described in the section below.  The Company has never
initiated any bankruptcy, receivership or similar proceedings.





The
December 2009 Share Exchange Transaction





On December 28, 2009, the Company
entered into a share exchange agreement (the “Exchange”) with Jolly Promise
Limited, an investment holding company organized under the laws of the British
Virgin Islands (“Jolly”) and the stockholder of Jolly, Welldone Pacific Limited,
a limited company organized under the laws of the British Virgin Islands
(“Welldone”). As a result of the share exchange, or the Exchange, the Company
acquired all of the issued and outstanding securities of Jolly from Welldone in
exchange for 42,000,000 newly-issued shares of the Company’s common stock, par
value $0.001 per share (“Common Stock”). Immediately following the Exchange, the
Stockholder owned 70% of the 60,000,000 issued and outstanding shares of voting
capital stock of the Company. As a result of the Exchange, Jolly became a
wholly-owned subsidiary of the Company.





Following the Exchange, the corporate
structure of the Company consisted of Jolly, a wholly-owned subsidiary of the
Company, Jolly’s wholly-owned subsidiary, Hong Kong Sindhi Fuel Injection
Company Limited, a Hong Kong company (“HKSind”), HKSind’s wholly-owned
subsidiary, Weifang Huajie Fuel Injection Company Limited (“Huajie”), a company
organized under the laws of The People’s Republic of China (“PRC”), Huajie’s
wholly-owned subsidiary, Weifang Xinde Fuel Injection System Company Limited, a
PRC company (“Weifang”) and Weifang’s wholly-owned subsidiaries, Huaxin Diesel
Engine Co., Ltd., a PRC company (“Huaxin”), Hengyuan Oil Pump and Oil Fitting
Co., Ltd., a PRC company (“Hengyuan”) and Jinma Diesel Engine Co., Ltd., a PRC
company (“Jinma” and together with Jolly, HKSind, Huajie, Weifang, Huaxin and
Hengyuan, the “Subsidiaries”).




- 3
-





On April 22, 2010, the Company held a
special meeting of its stockholders. At the special meeting, the Company’s
stockholders approved, by the requisite number of votes, to change the Company’s
name from “Wasatch Food Services, Inc.” to “Xinde Technology
Company”.





The principal business activities of
Xinde and its Subsidiaries consist of the production and marketing of fuel
injection systems, non-vehicle diesel engines, and diesel generator technology.
The above described corporate structure is illustrated below:











The Common Stock is currently quoted on
the Over-The-Counter Bulletin Board (“OTCBB”) and on the Pink Sheets under the
symbol “WTFS.OB”.





Current
Operations of the Company




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 primarily in the PRC. However, our products compete in the following three
primary product segments: (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.  No single supplier accounted for
more than 10% of the Company’s purchases and accounts payable for the years
ended June 30, 2010 and 2009, or for the three months ended September 30, 2010,
and no single customer accounted for more than 10% of the Company’s total
revenue or accounts receivable for the years ended June 30, 2010 and 2009, or
for the three months ended September 30, 2010.





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.




- 4
-




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.





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.





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.





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.





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.





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.




- 5
-




Economic
and Political Risks





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.





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.





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 and liabilities measured at fair value on a recurring basis subject to
the disclosure requirements of ASC 820-10 as of September 30, 2010 are as
follows:





Fair Value Measurements at Reporting Date UsingCarrying
                    Value as of
                    September 30,
                    2010
                  
                  
                  Quoted Prices in
                    Active Markets
                    for Identical
                    Assets
                    (Level 1)
                  
                  
                  Significant
                    Other
                    Observable
                    Inputs
                    (Level 2)
                  
                  
                  Significant
                    Unobservable
                    Inputs
                    (Level 3)Bank
      acceptance notes
                  
                  $
                  2,540,972
                  
                  
                  $
                  2,540,972
                  
                  
                  $
                  -
                  
                  
                  $
                  -Long-term
      notes payable
                  
                  
                  301,920
                  
                  
                  $
                  -
                  
                  
                  $
                  301,920
                  
                  
                  $
                  -





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,
2010.




- 6
-




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





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.





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
      yearsMachinery
              10
      yearsMotor
      vehicles
              5
      yearsOffice
      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.





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 right granted to the
Company is 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
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.




- 7
-




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, 2010 and 2009, warranty expense
was $132,098 and $38,650, respectively, and is included in selling and marketing
expenses in the accompanying consolidated statements of income and comprehensive
income.





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, 2010
and 2009 are $12,293 and $5,725, respectively. All the retirement benefits
expenses are included in general and administrative expenses.





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, 2010
                  
                  
                  June
                    30, 2010
                  
                  
                  September 30,
                    2009Period
      end RMB : US$ exchange rate
                  
                  
                  6.6981
                  
                  
                  
                  6.8086
                  
                  
                  
                  -Period
      average RMB : US$ exchange rate
                  
                  
                  6.7803
                  
                  
                  
                  -
                  
                  
                  
                  6.8412





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.





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 for sale mainly in the PRC. Our sales made
outside of the PRC were insignificant for the three months ended September, 2010
and 2009.





Recent
Accounting Pronouncements





There are
no new accounting pronouncements that have been adopted by the Company that
would have a material effect on the condensed consolidated financial statements
as of September 30, 2010.




- 8
-




Results
of Operations





Comparison
of Three Months Ended June 30, 2010 and 2009





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, 2010 and 2009:





For the Three Months Ended September 30,2010
                  
                  
                  2009
                  
                  
                  ComparisonsAmount
                  
                  
                  % of
                    Revenues
                  
                  
                  Amount
                  
                  
                  % of
                    Revenues
                  
                  
                  Change in
                    Amount
                  
                  
                  Change in
                    %$
                  
                  
                  
                  
                  
                  $
                  
                  
                  
                  
                  
                  $REVENUES,
      NET
                  
                  
                  30,138,909
                  
                  
                  
                  100
                  %
                  
                  
                  37,634,510
                  
                  
                  
                  100
                  %
                  
                  
                  (7,495,601
                  )
                  
                  
                  (20
                  )%COST
      OF GOODS SOLD
                  
                  
                  (25,480,066
                  )
                  
                  
                  (85
                  )%
                  
                  
                  (31,642,335
                  )
                  
                  
                  (84
                  )%
                  
                  
                  6,162,269
                  
                  
                  
                  (19
                  )%GROSS
      PROFIT
                  
                  
                  4,658,843
                  
                  
                  
                  15
                  %
                  
                  
                  5,992,175
                  
                  
                  
                  16
                  %
                  
                  
                  (1,333,332
                  )
                  
                  
                  (22
                  )%Selling
      and marketing
                  
                  
                  1,232,706
                  
                  
                  
                  4
                  %
                  
                  
                  433,004
                  
                  
                  
                  1
                  %
                  
                  
                  799,702
                  
                  
                  
                  185
                  %General
      and administrative
                  
                  
                  326,022
                  
                  
                  
                  1
                  %
                  
                  
                  293,212
                  
                  
                  
                  1
                  %
                  
                  
                  32,810
                  
                  
                  
                  11
                  %INCOME
      FROM OPERATIONS
                  
                  
                  3,100,115
                  
                  
                  
                  10
                  %
                  
                  
                  5,265,959
                  
                  
                  
                  14
                  %
                  
                  
                  (2,165,844
                  )
                  
                  
                  (41
                  )%Interest
      expense, net
                  
                  
                  (141,090
                  )
                  
                  
                  (0.47
                  )%
                  
                  
                  (106,323
                  )
                  
                  
                  (0.28
                  )%
                  
                  
                  (34,767
                  )
                  
                  
                  33
                  %Other
      income (expense), net
                  
                  
                  134,603
                  
                  
                  
                  0.45
                  %
                  
                  
                  (5,263
                  )
                  
                  
                  (0.01
                  )%
                  
                  
                  139,866
                  
                  
                  
                  (2658
                  )%Refundable
      value added tax
                  
                  
                  3,231,156
                  
                  
                  
                  11
                  %
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,231,156
                  
                  
                  
                  100
                  %INCOME
      FROM OPERATIONS BEFORE INCOME TAXES
                  
                  
                  6,324,784
                  
                  
                  
                  21
                  %
                  
                  
                  5,154,373
                  
                  
                  
                  14
                  %
                  
                  
                  1,170,411
                  
                  
                  
                  23
                  %INCOME
      TAXES
                  
                  
                  (868,407
                  )
                  
                  
                  (3
                  )%
                  
                  
                  (727,637
                  )
                  
                  
                  (2
                  )%
                  
                  
                  (140,770
                  )
                  
                  
                  19
                  %NET
      INCOME
                  
                  
                  5,456,377
                  
                  
                  
                  18
                  %
                  
                  
                  4,426,736
                  
                  
                  
                  12
                  %
                  
                  
                  1,029,641
                  
                  
                  
                  23
                  %OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation gain
                  
                  
                  973,804
                  
                  
                  
                  3
                  %
                  
                  
                  28,886
                  
                  
                  
                  0.08
                  %
                  
                  
                  944,918
                  
                  
                  
                  3271
                  %OTHER
      COMPREHENSIVE INCOME
                  
                  
                  973,804
                  
                  
                  
                  3
                  %
                  
                  
                  28,886
                  
                  
                  
                  0.08
                  %
                  
                  
                  944,918
                  
                  
                  
                  3271
                  %COMPREHENSIVE
      INCOME
                  
                  
                  6,430,181
                  
                  
                  
                  21
                  %
                  
                  
                  4,455,622
                  
                  
                  
                  12
                  %
                  
                  
                  1,974,559
                  
                  
                  
                  44
                  %





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 primarily in The People’s Republic of China
(the “PRC”) and, to an insignificant extent, overseas. The table below sets
forth a breakdown of our revenues by business segment for the three months
indicated:





For the Three Months Ended September 30,2010
                  
                  
                  2009
                  
                  
                  ComparisonsAmount
                  
                  
                  % of
                    Revenues
                  
                  
                  Amount
                  
                  
                  % of
                    Revenues
                  
                  
                  Change in
                    Amount
                  
                  
                  Change in
                    %$
                  
                  
                  
                  
                  
                  $
                  
                  
                  
                  
                  
                  $Revenues:Electricity
      pump
                  
                  
                  3,034,594
                  
                  
                  
                  10
                  %
                  
                  
                  2,451,398
                  
                  
                  
                  7
                  %
                  
                  
                  583,196
                  
                  
                  
                  24
                  %Multi-cylinder
                  
                  
                  10,247,061
                  
                  
                  
                  34
                  %
                  
                  
                  7,285,057
                  
                  
                  
                  19
                  %
                  
                  
                  2,962,004
                  
                  
                  
                  41
                  %Single-cylinder
      pump
                  
                  
                  460,068
                  
                  
                  
                  2
                  %
                  
                  
                  801,415
                  
                  
                  
                  2
                  %
                  
                  
                  (341,347
                  )
                  
                  
                  (43
                  )%Fuel
      muzzle
                  
                  
                  1,513,730
                  
                  
                  
                  5
                  %
                  
                  
                  1,970,498
                  
                  
                  
                  5.2
                  %
                  
                  
                  (456,768
                  )
                  
                  
                  (23
                  )%Parts
                  
                  
                  185,730
                  
                  
                  
                  0.6
                  %
                  
                  
                  178,335
                  
                  
                  
                  0.5
                  %
                  
                  
                  7,395
                  
                  
                  
                  4
                  %Diesel
      engine
                  
                  
                  8,976,148
                  
                  
                  
                  29
                  %
                  
                  
                  15,463,082
                  
                  
                  
                  41
                  %
                  
                  
                  (6,486,934
                  )
                  
                  
                  (42
                  )%Generator
      Sets
                  
                  
                  5,622,861
                  
                  
                  
                  19
                  %
                  
                  
                  9,392,263
                  
                  
                  
                  25
                  %
                  
                  
                  (3,769,402
                  )
                  
                  
                  (40
                  )%Accessory
                  
                  
                  106,700
                  
                  
                  
                  0.4
                  %
                  
                  
                  99,178
                  
                  
                  
                  0.3
                  %
                  
                  
                  7,522
                  
                  
                  
                  8
                  %Less:
      sales tax
                  
                  
                  (7,983
                  )
                  
                  
                  -
                  
                  
                  
                  (6,716
                  )
                  
                  
                  -
                  
                  
                  
                  (1,267
                  )
                  
                  
                  19
                  %Total
                  
                  
                  30,138,909
                  
                  
                  
                  100
                  %
                  
                  
                  37,634,510
                  
                  
                  
                  100
                  %
                  
                  
                  (7,495,601
                  )
                  
                  
                  (20
                  )%




- 9
-




Our
revenues decreased by 20%, or $7,495,601, to $30,138,909 for the three months
ended September 30, 2010 from $37,634,510 for the three months ended September
30, 2009. This decrease was primarily attributable to a decrease in diesel
engine sales, which decreased by 42% and accounted for 29% of our total revenue
in the three months ended September 30, 2010. The main reason for this decline
was attributable to an increasingly competitive market, which led to a decrease
in the selling price per unit of diesel engines; adjustments made to the product
structure at Huaxin and Jinma; specifically, the Company reduced  the
capacity of producing low profit margin products and started to increase
production of high profit margin products starting from August
2010  During the same period, however, sales of our new electricity
pump, which has met the Euro III standard,  increased by 24% to
$3,034,594 for the three months ended September 30, 2010 from $2,451,398 for the
three months ended September 30, 2009. This is mainly due to an increased market
demand with respect to environmental friendly products as compared to
traditional diesel engines.





Cost
of Revenues





The
principal components of our cost of goods sold are salaries and 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 business
segment for the three months indicated:





For the Three Months Ended September 30,2010
                    
                    
                    2009
                    
                    
                    ComparisonsAmount
                    
                    
                    % of
                      Revenues
                    
                    
                    Amount
                    
                    
                    % of
                      Revenues
                    
                    
                    Change in
                      Amount
                    
                    
                    Change in
                      %$
                    
                    
                    
                    
                    
                    $
                    
                    
                    
                    
                    
                    $Costs
      of Goods Sold:Electricity
      pump
                    
                    
                    2,255,677
                    
                    
                    
                    7.5
                    %
                    
                    
                    1,785,113
                    
                    
                    
                    5
                    %
                    
                    
                    470,564
                    
                    
                    
                    26
                    %Multi-cylinder
                    
                    
                    7,397,716
                    
                    
                    
                    25
                    %
                    
                    
                    5,000,227
                    
                    
                    
                    13.3
                    %
                    
                    
                    2,397,489
                    
                    
                    
                    48
                    %Single-cylinder
      pump
                    
                    
                    354,390
                    
                    
                    
                    1
                    %
                    
                    
                    761,991
                    
                    
                    
                    2
                    %
                    
                    
                    (407,601
                    )
                    
                    
                    (53
                    )%Fuel
      muzzle
                    
                    
                    1,337,271
                    
                    
                    
                    4.5
                    %
                    
                    
                    1,595,390
                    
                    
                    
                    4
                    %
                    
                    
                    (258,119
                    )
                    
                    
                    (16
                    )%Parts
                    
                    
                    181,340
                    
                    
                    
                    0.67
                    %
                    
                    
                    162,622
                    
                    
                    
                    0.4
                    %
                    
                    
                    18,718
                    
                    
                    
                    12
                    %Diesel
      engine
                    
                    
                    8,549,330
                    
                    
                    
                    28
                    %
                    
                    
                    13,795,317
                    
                    
                    
                    37
                    %
                    
                    
                    (5,245,987
                    )
                    
                    
                    (38
                    )%Generator
      Sets
                    
                    
                    5,305,116
                    
                    
                    
                    18
                    %
                    
                    
                    8,445,247
                    
                    
                    
                    22
                    %
                    
                    
                    (3,140,131
                    )
                    
                    
                    (37
                    )%Accessory
                    
                    
                    99,226
                    
                    
                    
                    0.33
                    %
                    
                    
                    96,428
                    
                    
                    
                    0.3
                    %
                    
                    
                    2,798
                    
                    
                    
                    3
                    %Total
                    
                    
                    25,480,066
                    
                    
                    
                    85
                    %
                    
                    
                    31,642,335
                    
                    
                    
                    84
                    %
                    
                    
                    (6,162,269
                    )
                    
                    
                    (19
                    )%





Our cost
of goods sold decreased by 19%, or $6,162,269, to $25,480,066 for the three
months ended September 30, 2010 from $31,642,335 for the three months ended
September 30, 2009. This decrease was in line with the decrease of our products
sales during the same period.




- 10
-




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:




For the Three Months Ended September 30,2010
                    
                    
                    2009
                    
                    
                    ComparisonsAmount
                    
                    
                    % of
                      Revenues
                    
                    
                    Amount
                    
                    
                    % of
                      Revenues
                    
                    
                    Change in
                      Amount
                    
                    
                    Change in %$
                    
                    
                    
                    
                    
                    $
                    
                    
                    
                    
                    
                    $Gross
      Profit and Gross Margin:Electricity
      pump
                    
                    
                    778,917
                    
                    
                    
                    26
                    %
                    
                    
                    666,285
                    
                    
                    
                    27
                    %
                    
                    
                    112,632
                    
                    
                    
                    17
                    %Multi-cylinder
                    
                    
                    2,849,345
                    
                    
                    
                    28
                    %
                    
                    
                    2,284,830
                    
                    
                    
                    31
                    %
                    
                    
                    564,515
                    
                    
                    
                    25
                    %Single-cylinder
      pump
                    
                    
                    105,678
                    
                    
                    
                    23
                    %
                    
                    
                    39,424
                    
                    
                    
                    5
                    %
                    
                    
                    66,254
                    
                    
                    
                    168
                    %Fuel
      muzzle
                    
                    
                    176,459
                    
                    
                    
                    12
                    %
                    
                    
                    375,108
                    
                    
                    
                    19
                    %
                    
                    
                    (198,649
                    )
                    
                    
                    (53
                    )%Parts
                    
                    
                    4,390
                    
                    
                    
                    2
                    %
                    
                    
                    15,713
                    
                    
                    
                    9
                    %
                    
                    
                    (11,323
                    )
                    
                    
                    (72
                    )%Diesel
      engine
                    
                    
                    426,818
                    
                    
                    
                    5
                    %
                    
                    
                    1,667,765
                    
                    
                    
                    11
                    %
                    
                    
                    (1,240,947
                    )
                    
                    
                    (74
                    %Generator
      Sets
                    
                    
                    317,745
                    
                    
                    
                    6
                    %
                    
                    
                    947,016
                    
                    
                    
                    10
                    %
                    
                    
                    (629,271
                    )
                    
                    
                    (66
                    )%Accessory
                    
                    
                    7,474
                    
                    
                    
                    7
                    %
                    
                    
                    2,750
                    
                    
                    
                    3
                    %
                    
                    
                    4,724
                    
                    
                    
                    172
                    %Less:
      sales tax
                    
                    
                    (7,983
                    )
                    
                    
                    -
                    
                    
                    
                    (6,716
                    )
                    
                    
                    -
                    
                    
                    
                    (1,267
                    )
                    
                    
                    19
                    %Total
                    
                    
                    4,658,843
                    
                    
                    
                    15
                    %
                    
                    
                    5,992,175
                    
                    
                    
                    16
                    %
                    
                    
                    (1,333,332
                    )
                    
                    
                    (22
                    )%




Our gross
profit decreased by 22%, or $1,333,332, to $4,658,843 for the three months ended
September 30, 2010 from $5,992,175 for the three months ended September 30,
2009. This decrease was primarily due to a decrease in revenue which was mainly
due to the reduction of our sales of diesel engines. The gross profit derived
from diesel engines decreased by 74%, or $1,240,947, to $426,818 for the three
months ended September 30, 2010 from $1,667,765 for the three months ended
September 30, 2009. This decrease was primarily due to the decreased selling
price of diesel engines, as well as the rising cost of the raw
materials.
 
 The
electricity pump, multi-cylinder, fuel muzzle and single-cylinder pump typically
enjoy higher gross margins relative to our other products. Gross margin for the
three months ended September 30, 2010 decreased by 1% from the three months
ended September 30, 2009. This was mainly due to the decrease in gross profit
margins for the electricity pump, multi-cylinder and fuel muzzle products due to
the increased cost of raw materials and the decrease on selling price which is
mainly caused by an increasingly competitive market. The total cost of goods
sold accounted for 85% in 2010, which was slightly higher than in 2009 by
1%.





Selling
and Marketing Expenses





Our
selling and marketing expenses primarily includes sales commission, after-sales
services, payroll, travel costs and freight fees. Our selling and marketing
expenses accounted for 4% of our revenues for the three months ended September
30, 2010.  Selling and marketing expenses increased by 185%, or
$799,702, to $1,232,706 for the three months ended September 30, 2010 from
$433,004 for the three months ended September 30, 2009. This increase was
primarily due to an increase in promotional fees in connection with sales
activities and an increase in sales commissions to employees.





We
anticipate selling and marketing expenses will continue to increase as we expand
our sales network and build our operations in additional regional markets in
China, and we expect such expenses will remain stable as a percentage of
revenues in the near future.





General
and Administrative Expenses





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




- 11
-




Our
general and administrative expenses have increased by 11%, or $32,810, to
$326,022 for the three months ended September 30, 2010 from $293,212 for the
three months ended September 30, 2009. This increase was primarily due to our
financial consulting fee, hiring of additional staff to support our growth and
retention of legal and accounting services in connection with being a publicly
traded Company. Our general and administrative expenses were approximately 1% of
revenues, which has remained stable from the three months ended September 30,
2009.





We expect
such expenses to continue to increase as our business grows. We also expect to
incur additional costs to meet the requirements of being a public company in the
U.S., such as hiring additional staff with experience in U.S. GAAP and SEC
reporting requirements and developing internal audit, disclosure controls and
compliance functions. All of these measures will increase our general and
administrative expenses in the future.





Income
from Operations





As a
result of the foregoing, our income from operations decreased by 41%, or
$2,165,844, to $3,100,115 for the three months ended September 30, 2010 from
$5,265,959 for the three months ended September 30, 2009.





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, 2010 and 2009, interest expense amounted to
$141,090 and $106,323 and represented 0.47% and 0.28% of our revenues,
respectively. The increase in financing costs was insignificant as a result of
the fact that many of our bank loans were obtained on June 30, 2010. Such
increase was primarily attributable to an increase of interest rates on notes
payable. The notes payable have increased by 84% to $1,621,481 from $881,934
during the three months ended September 30, 2009.





Other
Income, Net





Other
income primarily includes social security subsidy and rental income. Other
expenses primarily include subsidies for retired employees, loss on settlement
of account receivable and account payable for fixed assets and
inventories.





Other
income was $134,603 for the three months ended September 30, 2010 compared to
other expense of $5,263 for the three months ended September 30, 2009. This was
primarily due to a gain of $76,554 on a social security subsidy issued by the
local authority to Hengyuan.





Refundable
Value Added Tax





To honor
the Company’s on-going contributions to the local economy and its achievement of
becoming a public in the U.S., the local tax bureau exempted the Company’s
output VAT payable of $3,231,156, which was recorded as refundable 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 increased by 19%, or $140,770, to $868,407 for the three
months ended September 30, 2010 from $727,637 for the three months ended
September 30, 2009.





In
accordance with the relevant tax laws and regulations of the PRC, the applicable
corporate income tax rate for Hengyuan is 25%.  In 2010 and 2009,
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%. Our effective
tax rate was 14% for the three months ended September 30, 2010 and
2009.




- 12
-




Net
Income





Primarily
as a result of the foregoing, our net income increased by 23%, or $1,029,641, to
$5,456,377 for the three months ended September 30, 2010 from $4,426,736 for the
three months ended September 30, 2009.





Net
margin is a profitability ratio which is calculated by net income divided by
revenue. Our net margin increased to 18% in 2010 from 12% in 2009, which was
mainly attributable to the adjustments to our production structure starting from
August 2010, where we shifted our focus on sales of our products which yield
higher gross margins and the refundable value added tax of $3,231,156 which was
the exemption of our output VAT payable by the local tax bureau.





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:





Three Months Ended,2010
                
                
                2009$
                
                
                $Net
      cash provided by (used in) operating activities
                
                
                1,432,334
                
                
                
                (503,901
                )Net
      cash used in investing activities
                
                
                (2,035,040
                )
                
                
                (154,903
                )Net
      cash (used in) provided by financing activities
                
                
                (36,746
                )
                
                
                685,581Net
      (decrease) increase in cash and cash equivalents
                
                
                (639,452
                )
                
                
                26,777Effect
      of exchange rate changes on cash
                
                
                940,749
                
                
                
                29,384Cash
      and cash equivalents at beginning of period
                
                
                3,399,360
                
                
                
                127,576Cash
      and cash equivalents at end of period
                
                
                3,700,657
                
                
                
                183,737





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 $1,432,334 for the three months ended
September 30, 2010, which was primarily attributable to our net income of
$5,456,377, adjusted by an increase in deferred taxes of $442,227, an increase
in accounts payable of $2,514,312, an increase in value added tax payable of
$1,628,940, an increase in taxes payable of $511,150 and an increase in customer
deposits of $588,268, offset by an increase in accounts receivable of
$4,666,502, an increase in inventories of $3,998,198 and an increase in
prepayments for goods of $1,062,173.




- 13
-




Net cash
used in operating activities was $503,901 for the three months ended September
30, 2009, which was primarily attributable to our net income of $4,426,736,
adjusted by a decrease in inventories of $2,324,624 and an increase in accounts
payable of $1,975,591, an increase in value added tax payable of $6,107,248 and
an increase in taxes payable of $738,203, offset by an increase in accounts
receivable of $15,599,021 and an increase in due from employees of
$403,676.





Investing
Activities





Net cash
used in investing activities primarily consisted of purchases of plant and
equipment, purchases of construction in progress, proceeds from the disposal of
fixed assets notes receivable.





Net cash
used in investing activities was $2,035,040 for the three months ended September
30, 2010, which is primarily attributable to an increase in notes receivable of
$2,026,093.





Net cash
used by investing activities was $154,903 for the three months ended September
30, 2009, which is primarily attributable to an increase in notes receivable of
$129,730.





Financing
Activities





Net cash
used in / provided by 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 dividend
paid.





Net cash
used in financing activities was $36,746 for the three months ended September
30, 2010, which was primarily attributable to an increase in proceeds from
short-term loans of $294,971 and an increase in proceeds from notes payable of
$753,150, offset by a decrease in repayments of short-term loans of $884,914 and
a decrease in repayments of notes payable of $199,953.





Net cash
provided by financing activities was $685,581 for the three months ended
September 30, 2009, which was primarily attributable to an increase in proceeds
from short-term loans of $2,631,125 and an increase in proceeds from notes
payable of $1,381,530, offset by a decrease in repayments of short-term loans of
$2,335,854 and a decrease in repayments of notes payable of $914,715 and long
term debt of $76,505.





Working
Capital





Working
capital is determined by deducting current liabilities from current
assets.





Our
working capital was $57,128,466 for the three months ended September 30, 2010,
as compared with $50,735,680 for the year ended June 30, 2010.





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, 2010,
and the effect these obligations are expected to have on our liquidity and cash
flows in future periods.




- 14
-




Payments Due by PeriodTotal
                    
                    
                    Less than
                      1 year
                    
                    
                    Over 1 yearContractual Obligations:Bank
      Indebtedness
                    
                    $
                    2,329,019
                    
                    
                    $
                    2,329,019
                    
                    
                    $
                    -Notes
      payable
                    
                    
                    1,923,401
                    
                    
                    
                    1,621,481
                    
                    
                    
                    301,920Construction
      In Processing
                    
                    
                    585,105
                    
                    
                    
                    585,105
                    
                    
                    
                    -Total
      Contractual Obligations:
                    
                    $
                    4,837,525
                    
                    
                    $
                    4,535,605
                    
                    
                    $
                    301,920





Bank
indebtedness consists of secured and unsecured borrowings from Industrial and
Commercial Bank of China, Rural Credit Cooperative, Bank of Communications,
Weifang Bank, China Construction Bank and Bank of China.





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





As of
September 30, 2010, the Company has a capital commitment of approximately
$585,105 for the construction of a new production line in connection with a new
plant.





On May
15, 2003, Hengyuan entered into a guarantee contract to serve as guarantor for
the bank loans borrowed by Mr. Liu Dianjun, a shareholder and officer of the
Company, from Industrial and Commercial Bank of China with a guarantee amount of
$42,581. Under this guarantee contract, a land use right and an office
building of Hengyuan were pledged for the bank loans.





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 $356,851. Under this guarantee contract, a land use right and an
office building of Hengyuan were pledged for the bank loans.





Off-Balance
Sheet Commitments and Arrangements





Other
than the arrangement described above, as of September 30, 2010, 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




RMB
Appreciation





The
Company believes that inflation has not had a material effect on its operations
to date.  However, continued appreciation of the RMB against the
U.S. Dollar and its effect on the Company's export business, could have a
material adverse effect on the Company.  In the event of a material
adverse effect on the Company, our strategy would be to reduce our reliance on
exports and to increase domestic sales.





The
Company is Subject to Special Considerations do 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.




- 15
-




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.





ITEM
4. CONTROLS AND PROCEDURES




Disclosure
Controls and Procedures




Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, as
of the end of the fiscal quarter covered by this report. Based on this
evaluation, our management, including our principal executive officer and our
principal financial officer, concluded that our disclosure controls and
procedures were effective as of September 30, 2010, to ensure that information
required to be disclosed by us in the reports filed or submitted by us under the
Exchange Act (i) is recorded, processed, summarized and reported within the time
period specified in SEC rules and forms, and (ii) is accumulated and
communicated to our management, including our principal executive officer and
our principal financial officer, as appropriate to allow appropriate decisions
on a timely basis regarding required disclosure.




Internal
Control over Financial Reporting




There
were no changes in internal control over financial reporting that occurred
during the fiscal quarter ended September 30, 2010 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, 2010, there
was no pending or outstanding material litigation with the Company.




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,
2010, 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.




- 16
-




ITEM
6. EXHIBITS




(a) Exhibits





EXHIBIT
              NO.
            
            DESCRIPTION
            
            LOCATION2.1
            
            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, 20093.1
            
            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,
    20093.2
            
            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, 20103.3
            
            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, 20093.4
            
            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, 200910.1
            
            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, 200914.1
            
            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, 201016.1
            
            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, 201021
            
            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, 200922
            
            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, 201031.1
            
            Certifications
      of the Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
            
            Provided
      herewith31.2
            
            Certifications
      of the Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002
            
            Provided
      herewith


- 17
-





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
      herewith32.2
            
            Certification
      Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of
      the Sarbanes-Oxley Act Of 2002
            
            Provided
      herewith99.1
            
            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, 201099.2
            
            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, 201099.3
            
            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, 201099.4
            
            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, 201099.5
            
            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


- 18
-


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
      15, 2010
                By:
                /s/
      Dianjun LiuName:
      Dianjun LiuIts:
      President, Chief Executive
                  Officer
      and Principal Executive
                  OfficerDate: November
      15, 2010
                By:
                /s/
      Chenglin WangName:
      Chenglin WangIts:
      Chief Financial Officer,
                  Corporate
      Secretary, and Principal
                  Financial
      and Accounting
Officer


- 19
-