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 December 31, 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 February 11, 2011, 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-1ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
    OPERATION
            3ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK
            18ITEM
      4. CONTROLS AND PROCEDURES
            18PART
      II OTHER INFORMATION
            18ITEM
      1. LEGAL PROCEEDINGS
            18ITEM
      1A. RISK FACTORS
            19ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
    PROCEEDS
            19ITEM
      3. DEFAULTS UPON SENIOR SECURITIES
            19ITEM
      4. (REMOVED AND RESERVED)
            19ITEM
      5. OTHER INFORMATION
            19ITEM
      6. EXHIBITS
            19SIGNATURES
            21EXHIBIT
      31.1EXHIBIT
      31.2EXHIBIT
      32.1EXHIBIT
      32.2













XINDE
TECHNOLOGY COMPANY
  AND
SUBSIDIARIES
  CONTENTS
  PAGES
              F-1-F-2
              CONDENSED
      CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2010 (UNAUDITED) AND JUNE
      30, 2010PAGES
              F-3
              CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME  FOR
      THE THREE AND SIX MONTHS ENDED  DECEMBER 31, 2010 AND 2009
      (UNAUDITED)PAGES
              F-4-F-5
              CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED DECEMBER
      31, 2010 AND 2009 (UNAUDITED)PAGES
              F-6-F-24
              NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX
      MONTHS ENDED DECEMBER 31, 2010 AND 2009
  (UNAUDITED)
   
  PART
I FINANCIAL INFORMATION
  ITEM
1. FINANCIAL STATEMENTS
 XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 
 ASSETSDecember
      31,
              
              
              June
      30,2010
              
              
              2010(Unaudited)CURRENT
      ASSETSCash
      and cash equivalents
              
              $
              2,911,401
              
              
              $
              3,399,360Accounts
      receivable, net of allowance for doubtful accounts of $335,060 and
      $793,630as of December 31, 2010 and June 30, 2010,
      respectively
              
              
              68,920,330
              
              
              
              60,473,007Inventories
              
              
              14,450,349
              
              
              
              5,584,317Notes
      receivable, including bank acceptance notes
              
              
              4,026,283
              
              
              
              628,133Prepayments
      for goods
              
              
              5,170,271
              
              
              
              3,822,120Prepaid
      expenses and other receivables
              
              
              32,803
              
              
              
              26,404Due
      from employees
              
              
              36,756
              
              
              
              131,400Deferred
      taxes
              
              
              —
              
              
              
              47,448Total
      Current Assets
              
              
              95,548,193
              
              
              
              74,112,189LONG-TERM
      ASSETSPlant
      and equipment, net
              
              
              3,105,704
              
              
              
              3,043,955Land
      use rights, net
              
              
              937,038
              
              
              
              948,504Construction
      in progress
              
              
              728,925
              
              
              
              685,222Deposit
      for land use right
              
              
              384,948
              
              
              
              373,821Deferred
      taxes
              
              
              142,575
              
              
              
              129,049Total
      Long-Term Assets
              
              
              5,299,190
              
              
              
              5,180,551TOTAL
      ASSETS
              
              $
              100,847,383
              
              
              $
              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’ EQUITYDecember
      31,
              
              
              June
      30,2010
              
              
              2010(Unaudited)CURRENT
      LIABILITIESAccounts
      payable
              
              $
              5,121,746
              
              
              $
              4,850,579Short-term
      bank loans
              
              
              1,966,182
              
              
              
              2,878,712Customer
      deposits
              
              
              779,976
              
              
              
              497,206Notes
      payable, including related parties
              
              
              1,632,031
              
              
              
              1,014,987Income
      tax payable
              
              
              6,449,705
              
              
              
              4,990,163Other
      payables
              
              
              1,063,228
              
              
              
              1,041,766Value
      added tax payable
              
              
              13,726,279
              
              
              
              6,931,841Due
      to employees
              
              
              60,415
              
              
              
              98,550Due
      to related parties
              
              
              302,446
              
              
              
              413,136Accrued
      expenses
              
              
              916,940
              
              
              
              659,569Deferred
      taxes
              
              
              309,820
              
              
              
              —Total
      Current Liabilities
              
              
              32,328,768
              
              
              
              23,376,509LONG—TERM
      LIABILITIESNotes
      payable to related parties
              
              
              275,332
              
              
              
              326,298Total
      Long-Term Liabilities
              
              
              275,332
              
              
              
              326,298TOTAL
      LIABILITIES
              
              
              32,604,100
              
              
              
              23,702,807COMMITMENT
      AND CONTINGENCIESSHAREHOLDERS’
      EQUITYCommon
      stock, $0.001 par value; 160,000,000 shares authorized; 60,000,000
      sharesissued and outstanding at December 31, 2010 and June 30, 2010,
      respectively
              
              
              60,000
              
              
              
              60,000Additional
      paid-in capital
              
              
              1,072,334
              
              
              
              1,072,334Retained
      earnings (the restricted portion is $204,069 at December 31, 2010 and June
      30, 2010)
              
              
              60,964,536
              
              
              
              50,131,203Accumulated
      other comprehensive income
              
              
              6,146,413
              
              
              
              4,326,396TOTAL
      SHAREHOLDERS’ EQUITY
              
              
              68,243,283
              
              
              
              55,589,933TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
              
              $
              100,847,383
              
              
              $
              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 Ended
                  
                  
                  Six
      Months EndedDecember
      31, 2010
                  
                  
                  December
      31, 2009
                  
                  
                  December
      31, 2010
                  
                  
                  December
      31, 2009REVENUES,
      NET
                  
                  $
                  32,387,892
                  
                  
                  $
                  35,750,798
                  
                  
                  $
                  62,686,928
                  
                  
                  $
                  73,367,699COST
      OF GOODS SOLD
                  
                  
                  (25,710,389
                  )
                  
                  
                  (28,962,481
                  )
                  
                  
                  (51,367,591
                  )
                  
                  
                  (60,590,584
                  )GROSS
      PROFIT
                  
                  
                  6,677,503
                  
                  
                  
                  6,788,317
                  
                  
                  
                  11,319,337
                  
                  
                  
                  12,777,115Selling
      and marketing
                  
                  
                  (807,979
                  )
                  
                  
                  (849,851
                  )
                  
                  
                  (2,025,097
                  )
                  
                  
                  (1,282,423
                  )General
      and administrative
                  
                  
                  (260,016
                  )
                  
                  
                  (269,378
                  )
                  
                  
                  (773,331
                  )
                  
                  
                  (562,438
                  )Bad
      debt recoveries
                  
                  
                  480,454
                  
                  
                  
                  74,968
                  
                  
                  
                  662,974
                  
                  
                  
                  74,909INCOME
      FROM OPERATIONS
                  
                  
                  6,089,962
                  
                  
                  
                  5,744,056
                  
                  
                  
                  9,183,883
                  
                  
                  
                  11,007,163Interest
      expense, net
                  
                  
                  (62,140
                  )
                  
                  
                  (70,647
                  )
                  
                  
                  (203,895
                  )
                  
                  
                  (176,936
                  )Other
      income (expense), net
                  
                  
                  122,565
                  
                  
                  
                  4,482
                  
                  
                  
                  238,102
                  
                  
                  
                  (784
                  )Refunded
      value added tax
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  3,258,380
                  
                  
                  
                  —INCOME
      BEFORE INCOME TAXES
                  
                  
                  6,150,387
                  
                  
                  
                  5,677,891
                  
                  
                  
                  12,476,470
                  
                  
                  
                  10,829,443INCOME
      TAXES
                  
                  
                  (773,934
                  )
                  
                  
                  (961,736
                  )
                  
                  
                  (1,643,137
                  )
                  
                  
                  (1,688,892
                  )NET
      INCOME
                  
                  
                  5,376,453
                  
                  
                  
                  4,716,155
                  
                  
                  
                  10,833,333
                  
                  
                  
                  9,140,551OTHER
      COMPREHENSIVE INCOME (LOSS)Foreign
      currency translation gain (loss)
                  
                  
                  846,213
                  
                  
                  
                  (837
                  )
                  
                  
                  1,820,017
                  
                  
                  
                  28,049OTHER
      COMPREHENSIVE INCOME (LOSS)
                  
                  
                  846,213
                  
                  
                  
                  (837
                  )
                  
                  
                  1,820,017
                  
                  
                  
                  28,049COMPREHENSIVE
      INCOME
                  
                  $
                  6,222,666
                  
                  
                  $
                  4,715,318
                  
                  
                  $
                  12,653,350
                  
                  
                  $
                  9,168,600WEIGHTED
      AVERAGE SHARES OUTSTANDING BASIC AND DILUTED
                  
                  
                  60,000,000
                  
                  
                  
                  42,782,609
                  
                  
                  
                  60,000,000
                  
                  
                  
                  42,391,304NET
      INCOME PER COMMON SHARE, BASIC AND DILUTED
                  
                  $
                  0.09
                  
                  
                  $
                  0.11
                  
                  
                  $
                  0.18
                  
                  
                  $
                  0.22
 See
accompanying notes to the condensed consolidated financial
statements
  F-3
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  Six
      Months EndedDecember
      31, 2010
                    
                    
                    December
      31, 2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                    
                    $
                    10,833,333
                    
                    
                    $
                    9,140,551Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                    
                    
                    141,449
                    
                    
                    
                    124,616Provision
      for doubtful accounts
                    
                    
                    188,804
                    
                    
                    
                    121,955Refunded
      value added tax
                    
                    
                    (3,258,380
                    )
                    
                    
                    —Deferred
      taxes
                    
                    
                    343,742
                    
                    
                    
                    (8,314
                    )Net
      (gain) loss on settlement of accounts receivable and accounts payable for
      fixed assets
                    
                    
                    (7,590
                    )
                    
                    
                    61,633Changes
      in operating assets and liabilities, net of effects of
      acquisition:(Increase)
      Decrease In:Accounts
      receivable
                    
                    
                    (8,636,128
                    )
                    
                    
                    (809,078
                    )Inventories
                    
                    
                    (8,866,033
                    )
                    
                    
                    (8,353,060
                    )Prepayments
      for goods
                    
                    
                    (1,348,151
                    )
                    
                    
                    30,197Prepaid
      expenses and other receivables
                    
                    
                    (6,398
                    )
                    
                    
                    (2,862
                    )Due
      from employees
                    
                    
                    94,643
                    
                    
                    
                    (214,668
                    )Due
      from related parties
                    
                    
                    —
                    
                    
                    
                    (183,762
                    )Increase
      (Decrease) In:Accounts
      payable
                    
                    
                    286,040
                    
                    
                    
                    636,349Value
      added tax payable
                    
                    
                    10,052,818
                    
                    
                    
                    12,188,453Other
      payables
                    
                    
                    21,462
                    
                    
                    
                    (680,197
                    )Taxes
      payable
                    
                    
                    1,459,542
                    
                    
                    
                    1,693,117Customer
      deposits
                    
                    
                    282,770
                    
                    
                    
                    (88,477
                    )Due
      to employees
                    
                    
                    (38,135
                    )
                    
                    
                    (482,459
                    )Due
      to related parties
                    
                    
                    (110,689
                    )
                    
                    
                    (338,316
                    )Accrued
      expenses
                    
                    
                    257,372
                    
                    
                    
                    289,574Net
      cash provided by operating activities
                    
                    
                    1,690,471
                    
                    
                    
                    13,125,252CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of plant and equipment
                    
                    
                    (108,891
                    )
                    
                    
                    (96,197
                    )Purchases
      of construction in progress
                    
                    
                    (22,920
                    )
                    
                    
                    (682,561
                    )Reverse
      merger, net of cash acquired
                    
                    
                    —
                    
                    
                    
                    1,109Repayment
      of notes receivable
                    
                    
                    44,414,853
                    
                    
                    
                    51,499,380Issuance
      of notes receivable
                    
                    
                    (47,738,078
                    )
                    
                    
                    (64,904,916
                    )Net
      cash used in investing activities
                    
                    
                    (3,455,036
                    )
                    
                    
                    (14,183,185
                    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from short-term loans
                    
                    
                    743,641
                    
                    
                    
                    2,923,558Repayments
      of short-term loans
                    
                    
                    (1,725,248
                    )
                    
                    
                    (2,335,923
                    )Proceeds
      from notes payable
                    
                    
                    654,601
                    
                    
                    
                    1,527,559Repayments
      of notes payable
                    
                    
                    (137,201
                    )
                    
                    
                    (1,018,846
                    )Repayments
      of long-term debt
                    
                    
                    —
                    
                    
                    
                    (101,597
                    )Net
      cash (used in) provided by financing activities
                    
                    $
                    (464,207
                    )
                    
                    $
                    994,751
 See
accompanying notes to condensed consolidated financial statements
  F-4
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  Six
      Months EndedDecember
      31, 2010
              
              
              December
      31, 2009NET
      DECREASE IN CASH AND CASH EQUIVALENTS
              
              $
              (2,228,772
              )
              
              $
              (63,182
              )Effect
      of exchange rate changes on cash
              
              
              1,740,813
              
              
              
              55,205Cash
      and cash equivalents at beginning of period
              
              
              3,399,360
              
              
              
              127,576CASH AND CASH EQUIVALENTS AT END OF
      PERIOD
              
              $
              2,911,401
              
              
              
              119,599
 
 SUPPLEMENTARY
      CASH FLOW INFORMATIONDecember
      31, 2010
              
              
              December
      31, 2009Income
      taxes paid
              
              $
              10,752
              
              
              $
              9,712Interest
      paid
              
              $
              155,489
              
              
              $
              194,876
  SUPPLEMENTAL
NON-CASH DISCLOSURES:
 1.
                During
      the six months ended December 31, 2010, accounts payable with an aggregate
      carrying amount of $14,873 was settled by two fixed assets with a fair
      value of $7,283, resulting in a gain of
$7,590.
 2.
                  During
      the six months ended December 31, 2009, accounts receivable with a
      carrying amount of $523,317 was settled by a fixed asset with a fair value
      of $95,016 and inventories with a fair value of $359,822, resulting in a
      loss of $68,479.
 3.
                  During
      the six months ended December 31, 2009, accounts payable with a carrying
      amount of $36,544 was settled by a fixed asset with a fair value of
      $29,698, resulting in a gain of
$6,846.
 4.
                During
      the six months ended December 31, 2009, $297,775 was transferred from
      construction in progress to plant and
equipment.
    See
accompanying notes to condensed consolidated financial statements
  F-5
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 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”). The
principal activities of the Company 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.
 
 Details
of Xinde and its subsidiaries (the “Company”) as of December 31, 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
 Weifang
      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
                  December
      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 as of December
31, 2010 and for the three and six months ended December 31, 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 condensed consolidated financial position and the condensed
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 audited consolidated financial statements included in the Form 10-K.
These interim condensed consolidated financial statements should be read in
conjunction with that report.
  F-6
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 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 condensed
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-7
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 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:
 
 •
Level 1—defined as observable inputs such as quoted prices in active
markets;
 •
Level 2—defined as inputs other than quoted prices in active markets that
are either directly or indirectly observable; and
 •
Level 3—defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own
assumptions.
 
 The
assets measured at fair value on a recurring basis subject to the disclosure
requirements of ASC 820-10 as of December 31, 2010 are as follows:
 
 Fair Value Measurements at Reporting Date
      UsingCarrying
      Value as of
                        December
      31, 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
                      
                      $
                      3,875,855
                      
                      
                      $
                      3,875,855
                      
                      
                      $
                      —
                      
                      
                      $
                      —Long-term
      notes payable
                      
                      $
                      275,332
                      
                      
                      
                      —
                      
                      
                      $
                      275,332
                      
                      
                      $
                      —
 
 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 December 31,
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-8
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 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-9
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 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 six months ended December 31, 2010 and
2009.
 
 (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 condensed consolidated
statements of income and comprehensive income in the period in which sales is
recognized. During the six months ended December 31, 2010 and 2009,
warranty expense was $281,144 and $77,765, respectively, and is included in
selling and marketing expenses in the accompanying condensed 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 six months ended December 31, 2010 and
2009 are $15,105 and $11,070, respectively. All the retirement benefits expenses
are included in general and administrative expenses.
   F-10
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2010 AND 2009
 (UNAUDITED)
 
 NOTE
4 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 
 (l)
              Foreign
      Currency Translation
 
 The
accompanying condensed consolidated financial statements are presented in United
States dollars. The functional currency of the Company is the Renminbi (RMB).
Capital accounts of the condensed 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.
 
 December
      31,
                    2010
                  
                  
                  June
      30,
                    2010
                  
                  
                  December
      31,
                    2009Period
      ended RMB: US$ exchange rate
                  
                  
                  6.6118
                  
                  
                  
                  6.8086
                  
                  
                  
                  —Average
      RMB:  US$ exchange rate for three months ended
                  
                  
                  6.6670
                  
                  
                  
                  —
                  
                  
                  
                  6.8360Average
      RMB:  US$ exchange rate for six months ended
                  
                  
                  6.7237
                  
                  
                  
                  —
                  
                  
                  
                  6.8386
 
 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$ 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 six months ended December
31, 2010 and 2009.
 
 (o)
              Segment
      and Geographic Reporting
 
 The
Company operates in one business segment, the design, development, manufacture,
and commercialization of fuel injection pumps, injectors, multi-cylinder diesel
engines and small generator units mainly in the PRC. The sales of the Company
outside of the PRC were insignificant for the six months ended December 31, 2010
and 2009.
   F-11
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 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.
  NOTE 5 –CONCENTRATIONS
  (a)
              Customers
 
 No
customer accounted for more than 5% of total sales or accounts receivable as of
December 31, 2010 and June 30, 2010 and for the three and six months ended
December 31, 2010 and 2009.
 
 (b)
              Suppliers
 
 The
Company’s major suppliers accounted for the following percentages of total
purchases and accounts payable as follows:
  Purchases
                            Six
      Months Ended
                            December
      31,
                          
                          
                          Accounts
      PayableMajor
      Suppliers
                          
                          2010
                          
                          
                          2009
                          
                          
                          December
      31, 2010
                          
                          
                          June
      30,2010Company
      A
                          
                          10.1%
                          
                          
                          0.9%
                          
                          
                          7%
                          
                          
                          1.7%Company
      B
                          
                          5.4%
                          
                          
                          1.1%
                          
                          
                          4.3%
                          
                          
                          1.4%
  NOTE 6 –INVENTORIES
  Inventories
are summarized as follows:
  December
      31,
                    2010
                  
                  
                  June
      30,
                    2010(Unaudited)Raw
      materials
                  
                  $
                  8,602,093
                  
                  
                  $
                  2,798,967Work-in-progress
                  
                  
                  889,710
                  
                  
                  
                  889,937Finished
      goods
                  
                  
                  4,958,546
                  
                  
                  
                  1,895,413Total
      inventories
                  
                  $
                  14,450,349
                  
                  
                  $
                  5,584,317
   F-12
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2010 AND 2009
 (UNAUDITED)
 NOTE 7 –NOTES
RECEIVABLE
 
 Notes
receivable from unrelated and related individuals consist of the
following:
 
 December
      31,
                2010
              
              
              June
      30,
                2010(Unaudited)Notes
      receivable from unrelated individuals:Due
      December 24, 2010, interest at 10% per annum
              
              $
              —
              
              
              $
              2,857Due
      December 24, 2010, interest at 10% per annum
              
              
              —
              
              
              
              22,031Due
      May 16, 2011, interest at 6% per annum
              
              
              117,971
              
              
              
              114,560Due
      June 30, 2011, interest at 6% per annum
              
              
              6,828
              
              
              
              —Due
      December 24, 2011, interest at 10% per annum
              
              
              2,942
              
              
              
              —Due
      December 24, 2011, interest at 10% per annum
              
              
              22,687
              
              
              
              —Subtotal
              
              $
              150,428
              
              
              $
              139,448Bank
      acceptance notes (aggregated by month of maturity):Due
      December, 2010 (Settled on its due date)
              
              
              —
              
              
              
              29,375Due
      October, 2010 (Settled on its due date)
              
              
              —
              
              
              
              29,375Due
      November, 2010 (Settled on its due date)
              
              
              —
              
              
              
              205,220Due
      December, 2010 (Settled on its due date)
              
              
              —
              
              
              
              224,715Due
      February, 2011 (Settled on its due date)
              
              
              151,245
              
              
              
              —Due
      March, 2011
              
              
              315,554
              
              
              
              —Due
      April, 2011
              
              
              642,790
              
              
              
              —Due
      May, 2011
              
              
              945,280
              
              
              
              —Due
      June, 2011
              
              
              1,820,986
              
              
              
              —Subtotal
              
              
              3,875,855
              
              
              
              488,685Total
              
              $
              4,026,283
              
              
              $
              628,133
  Notes
receivable from unrelated individuals are unsecured.
  NOTE 8 –DUE
FROM/TO RELATED PARTIES
 
 (I)
              Due
      To Related Parties
 
 December
      31,
                2010
              
              
              June
      30,
                2010(Unaudited)Jin
      Xin
              
              (a)
              
              $
              1,452
              
              
              $
              —Liu
      Dianjun
              
              (b)
              
              
              269,401
              
              
              
              342,994Li
      Zengshan
              
              (c)
              
              
              31,593
              
              
              
              23,612Zhang
      Qixiu
              
              (d)
              
              
              —
              
              
              
              32,312Jin
      Wei
              
              (e)
              
              
              —
              
              
              
              14,218Total
      due to related parties
              
              
              
              $
              302,446
              
              
              $
              413,136
   F-13
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2010 AND 2009
 (UNAUDITED)
   NOTE
8 - DUE FROM/TO RELATED PARTIES (CONTINUED)
 
 (II)
              Due
      From Employees
 
 December
      31,
                2010
              
              
              June
      30,
                2010(Unaudited)Current
              
              
              
              $
              36,756
              
              
              $
              131,400Total
      due from employees
              
              (f)
              
              $
              36,756
              
              
              $
              131,400
 
 (III)
              Due
      To Employees
 
 December
      31,
                2010
              
              
              June
      30,
                2010(Unaudited)Current
              
              
              
              $
              60,415
              
              
              $
              98,550Total
      due to employees
              
              (g)
              
              $
              60,415
              
              
              $
              98,550
 
 (a)
              Jin
      Xin is a shareholder of the Company and the chairman of Jinma, a
      subsidiary of the Company. The payable balance represents business related
      expenses paid by Jinxin on behalf of the Company, which is unsecured,
      interest-free and has no fixed repayment
term.
 
 (b)
              Liu
      Dianjun is a shareholder of the Company and the chairman of Hengyuan, a
      subsidiary of the Company. The balances represent money advanced from Liu
      Dianjun, which are interest-free, unsecured and have no fixed repayment
      terms.
 
 (c)
              Li
      Zengshan is a shareholder of the Company and the chairman of Huaxin, a
      subsidiary of the Company. The balances represent business related
      expenses paid by Li Zengshan on behalf of the Company. The balances are
      interest-free, unsecured and have no fixed repayment
  term.
 
 (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 money
      advanced from Jin Wei, which was interest-free, unsecured and had no fixed
      repayment term.
 
 (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-14
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2010 AND 2009
 (UNAUDITED)
 
 NOTE 8 –LAND USE
RIGHTS, NET
 
 Land use
rights consist of the following:
 
 December
      31,
                2010
              
              
              June
      30,
                2010(Unaudited)Cost
      of land use rights
              
              $
              1,087,939
              
              
              $
              1,087,939Less:
      Accumulated amortization
              
              
              (150,901
              )
              
              
              (139,435
              )Land
      use rights, net
              
              $
              937,038
              
              
              $
              948,504
 
 Amortization
expense for the six months ended December 31, 2010 and 2009 was $11,466 and
$11,270, respectively.
 
 Amortization
expense for the next five years and thereafter is as follows:
 
 2011
      (six months)
              
              $
              11,4662012
              
              
              22,9332013
              
              
              22,9332014
              
              
              22,9332015
              
              
              22,933Thereafter
              
              
              833,840Total
              
              $
              937,038
  Two land
use rights with an aggregate net book value of $52,615 and $51,880 at December
31, 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 March 2011. These two land use rights
were pledged as collateral for bank loans borrowed by Li Zengshan and Liu
Dianjun (both are shareholders of the Company) in the amounts of $347,589 and
$47,614. Also see Note 14.
 
 At
December 31, 2010 and June 30, 2010, the net book value of land use rights
pledged as collateral for bank loans was $302,489 and $514,662, respectively.
Also see Note 10.
   F-15
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2010 AND 2009
 (UNAUDITED)
 NOTE 9 –PLANT
AND EQUIPMENT, NET
  Plant and
equipmentconsist
of the following:
 
 December
      31, 2010
              
              
              June
      30,
                2010(Unaudited)At
      cost:Buildings
              
              $
              2,902,259
              
              
              $
              2,818,371Machinery
      and equipment
              
              
              1,127,553
              
              
              
              1,082,065Office
      equipment
              
              
              54,894
              
              
              
              50,299Motor
      vehicles
              
              
              525,126
              
              
              
              430,9814,609,832
              
              
              
              4,381,716Less
      : Accumulated depreciationBuildings
              
              
              (490,273
              )
              
              
              (429,115
              )Machinery
      and equipment
              
              
              (685,934
              )
              
              
              (611,728
              )Office
      equipment
              
              
              (39,676
              )
              
              
              (35,789
              )Motor
      vehicles
              
              
              (288,245
              )
              
              
              (261,129
              )(1,504,128
              )
              
              
              (1,337,761
              )Plant
      and equipment, net
              
              $
              3,105,704
              
              
              $
              3,043,955
 
 Depreciation
expense for the six months ended December 31, 2010 and 2009 was $129,983 and
$113,346 respectively.
 
 At
December 31, 2010, the legal title to five motor vehicles and two office
buildings with a total net book value of $64,966 and $642,021 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 March
2011.
 
 Two
office buildings were pledged as collateral for bank loans borrowed by Li
Zengshan and Liu Dianjun (both are shareholders of the Company) in the amounts
of $347,589 and $47,614, respectively. Also see Note 14.
 
 Application
for ownership certificates of eleven buildings with an aggregate net book value
of $1,075,279 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 March
2011.
  F-16
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2010 AND 2009
 (UNAUDITED)
 NOTE 10 –SHORT-TERM BANK LOANS
  Short-term
bank loansconsist
of the following:
 
 December
      31,
                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. (Repaid on its due
      date)
              
              $
              —
              
              
              $
              88,124Monthly
      interest only payments at 7.52% per annum, due January 15, 2011,
      guaranteed by Weifang Jinma Diesel Engine Co., Ltd. and Weifang Dachang
      Energy-Saving Equipment Co., Ltd. (Subsequently settled on its due
      date)
              
              
              453,735
              
              
              
              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-17
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2010 AND 2009
 (UNAUDITED)
 NOTE 10 –SHORT-TERM BANK LOANS (CONTINUED)
 
 December
      31, 2010
              
              
              June
      30,
                2010(Unaudited)Weifang
      BankMonthly
      interest only payments at 7.43% per annum, due October 27, 2010,
      guaranteed by Weifang Hengyuan Oil Pump & Oil Fitting Co., Ltd.
      (Repaid on its due date)
              
              $
              —
              
              
              $
              587,492Monthly
      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)
              
              
              —
              
              
              
              293,746Monthly
      interest only payments at 7.43% per annum, due April 10, 2011, guaranteed
      by Weifang Hengyuan Oil Pump & Oil Fitting Co., Ltd.
              
              
              302,489
              
              
              
              293,746Monthly
      interest only payments at 7.43% per annum, due July 27, 2011, guaranteed
      by Weifang Hengyuan Oil Pump & Oil Fitting Co., Ltd.
              
              
              604,980
              
              
              
              —China
      Construction Bank:Monthly
      interest only payments at 5.84% per annum, due December 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. Also see Note
      8.
              
              
              302,489
              
              
              
              —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
              
              
              302,489
              
              
              
              293,747Total
              
              $
              1,966,182
              
              
              $
              2,878,712
 
 Interest
expense for short-term bank loans for the six months ended December 31, 2010 and
2009 was $191,911 and $199,059, respectively.
   F-18
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2010 AND 2009
 (UNAUDITED)
 NOTE 11 –NOTES
PAYABLE, INCLUDING RELATED PARTIES
 
 Notes
payable consist of the following:
  December
      31,
                  2010
                
                
                June
      30,
                  2010(Unaudited)Notes
      payable to an unrelated individual:Due
      December 26, 2010, monthly interest payment at 6% per annum with the
      principal payable at the due date
                
                
                
                $
                —
                
                
                $
                84,505Due
      December 24, 2010, monthly interest payment at 10% per annum with the
      principal payable at the due date
                
                
                
                
                —
                
                
                
                98,308Due
      May 4, 2011, monthly interest payment at 14.36% per annum with the
      principal payable at the due date
                
                
                
                
                384,162
                
                
                
                373,058Due
      May 4, 2011, monthly interest payment at 12% per annum with the principal
      payable at the due date
                
                
                
                
                145,195
                
                
                
                140,998Due
      August 4, 2011, monthly interest payment at 14.40% per annum with the
      principal payable at the due date
                
                
                
                
                378,112
                
                
                
                —Due
      June 30, 2011, monthly interest payment at 10.00% per annum with the
      principal payable at the due date
                
                
                
                
                32,003
                
                
                
                —Due
      October 1, 2011, interest free
                
                
                
                
                86,210
                
                
                
                —Due
      November 1, 2011, monthly interest payment at 10% per annum with the
      principal payable at the due date
                
                
                
                
                23,866
                
                
                
                —Due
      December 25, 2011, monthly interest payment at 10.00% per annum with the
      principal payable at the due date
                
                
                
                
                97,704
                
                
                
                —Subtotal
                
                
                
                
                1,147,252
                
                
                
                696,869Notes
      payable to related individuals:Due
      July 1, 2010, monthly interest payment at 7.28% per annum
                  (Settled
      on its due date)
                
                (b)
                
                
                —
                
                
                
                77,843Due
      December 24, 2010, monthly interest payment at 10% per annum (Settled in
      advance)
                
                (b)
                
                
                —
                
                
                
                95,467Due
      May 2, 2011, monthly interest payment at 6% per annum with the principal
      payable at the due date
                
                (b)
                
                
                32,170
                
                
                
                31,240Due
      June 30, 2011, monthly interest payment at 10% per annum with the
      principal payable at the due date
                
                (b)
                
                
                83,185
                
                
                
                80,930Due
      June 30, 2011, monthly interest payment at 5.76% per annum (Settled in
      advance)
                
                (a)
                
                
                —
                
                
                
                32,638Due
      June 30, 2011, monthly interest payment at 6.91% per annum. Principal is
      repaid every month in 12 equal installments from December 4,
      2010.
                
                (b)
                
                
                86,261
                
                
                
                —Due
      December 24, 2010, monthly interest payment at 10% per annum with the
      principal payable at the due date
                
                (b)
                
                
                98,309
                
                
                
                —Due
      June 30, 2011, monthly interest payment at 5.84% per annum. Principal is
      repaid every month in 12 equal installments from December 15,
      2010.
                
                (a)
                
                
                33,610
                
                
                
                —Due
      November 27, 2011, monthly interest payment at 10% per
    annum
                
                (c)
                
                
                151,244
                
                
                
                —Subtotal
                
                
                
                
                484,779
                
                
                
                318,118Total
                
                
                
                $
                1,632,031
                
                
                $
                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)
              The
      notes are or were due to Mr. Li Zengshan, a shareholder and officer of the
      Company. The current balances represent loans to the Company which are
      unsecured.
 
 (c)
              This
      note is due to Ms. Zhang Qixiu, the mother of Mr. Jinxin (also see Note
      8(I)), a shareholder and officer of the Company. The current balance
      represents a loan to the Company which is
  unsecured.
 
 Notes
payable to an unrelated individual are unsecured.
  F-19
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2010 AND 2009
 (UNAUDITED)
 NOTE 12 –LONG
-TERM NOTES PAYABLE TO RELATED PARTIES
 
 Long-term
notes payable to related parties consist of the following:
 December
31,
                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)
              
              
              261,328
              
              
              
              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)
              
              $
              14,004
              
              
              $
              —Total
              
              
              
              $
              275,332
              
              
              $
              326,298
 
 (a)
              The
      current note is due to Mr. Liu Dianjun, a shareholder and officer of the
      Company. The notes represent loans 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
13 – TAXES
 
 (a)
              Corporation
      Income Tax (“CIT”)
 
 On March
16, 2007, the National People’s Congress of China approved the Corporate Income
Tax Law of the People’s Republic of China (the “new CIT law”), which went into
effective on January 1, 2008. In accordance with the relevant tax laws and
regulations of PRC, the applicable corporate income tax rate for Hengyuan 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-20
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2010 AND 2009
 (UNAUDITED)
 NOTE 13 –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 December 31, 2010, the Company does not have a liability for
unrecognized tax benefits.
 
 The
Company’s income tax expense for the six months ended December 31, 2010 and 2009
are summarized as follows:
 
 December
      31, 2010
              
              
              December
      31,
                2009(Unaudited)
              
              
              (Unaudited)Current:Provision
      for CIT
              
              $
              1,299,396
              
              
              $
              1,697,205Deferred:Provision
      for CIT
              
              
              343,742
              
              
              
              (8,313
              )Income
      tax expense
              
              $
              1,643,138
              
              
              $
              1,688,892
 
 The
Company’s income tax expense differs from the “expected” tax expense for the six
months ended December 31, 2010 and 2009 (computed by applying the CIT rate of
25% percent to income before income taxes) as follows:
 
 December
      31,
                2010
              
              
              December
      31,
                2009(Unaudited)
              
              
              (Unaudited)Computed
      “expected” expense
              
              $
              3,119,118
              
              
              $
              2,707,361Permanent
      differences
              
              
              (832,142
              )
              
              
              (149,700
              )Favourable
      tax rates
              
              
              (643,838
              )
              
              
              (868,769
              )Income
      tax expense
              
              $
              1,643,138
              
              
              $
              1,688,892
   F-21
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2010 AND 2009
 (UNAUDITED)
 NOTE 13 –TAXES
(CONTINUED)
 
 The tax
effects of temporary differences that give rise to the Company’s net deferred
tax assets and liabilities as of December 31, 2010 and June 30, 2010 are as
follows:
 
 December
      31,
                2010
              
              
              June
      30,
                2010(Unaudited)Deferred
      tax assets:Current
      portion:Bad
      debt provision
              
              $
              24,894
              
              
              $
              24,174Expenses
              
              
              55,446
              
              
              
              76,720Subtotal
              
              $
              80,340
              
              
              $
              100,894
 
 Deferred
      tax liabilities:Current
      portion:Sales
      cut-off
              
              $
              (364,746
              )
              
              $
              (31,596
              )Others
              
              
              (25,414
              )
              
              
              (21,850
              )Subtotal
              
              
              (390,160
              )
              
              
              (53,446
              )Net
      deferred tax (liabilities) assets - current portion
              
              $
              (309,820
              )
              
              $
              47,448
 
 Deferred
      tax assets:Non-current
      portion:Depreciation
              
              $
              131,036
              
              
              $
              118,448Amortization
              
              
              11,539
              
              
              
              10,601Subtotal
              
              
              142,575
              
              
              
              129,049Net
      deferred tax assets - non-current portion
              
              
              142,575
              
              
              
              129,049Total
      net deferred tax (liabilities) assets
              
              $
              (167,245
              )
              
              $
              176,497
   F-22
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2010 AND 2009
 (UNAUDITED)
 NOTE 13 –TAXES
(CONTINUED)
  (b)
              Tax
      Holiday Effect
 
 For the
six months ended December 31, 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 December 31, 2010 and 2009.
 
 The pro
forma combined effects of the favorable tax rates available to the Company for
the six months ended December 31, 2010 and 2009 are as follows:
  For
      the Six Months Ended
                December 31,2010
              
              
              2009Tax
      holiday effect
              
              $
              643,838
              
              
              $
              868,769Basic
      net income per share effect
              
              $
              0.01
              
              
              $
              0.02
 
 (c)
              Value
      Added Tax (“VAT”)
 
 Enterprises
or individuals, who sell commodities, engage in repair and maintenance or import
or export goods in the PRC are subject to a value added tax in accordance with
Chinese Laws. The value added tax standard rate is 17% of the gross sale price
and the Company records its revenue net of VAT. A credit is available whereby
VAT paid on the purchases of semi-finished products or raw materials used in the
production of the Company’s finished products can be used to offset the VAT due
on the sales of the finished products.
 
 In the
six months ended December 31, 2010, output VAT payable of $3,258,380 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 $3,258,380 which was reflected in the
accompanying condensed consolidated statements of income and comprehensive
income for the six months ended December 31, 2010.
 
 The VAT
payable was $13,726,279 and $6,931,841 at December 31, 2010 and June 30, 2010,
respectively.
   F-23
  XINDE
TECHNOLOGY COMPANY
 AND
SUBSIDIARIES
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE AND SIX MONTHS
ENDED DECEMBER 31, 2010 AND 2009
 (UNAUDITED)
 NOTE 14 –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
$47,614. Under this guarantee contract, a land use right and an office
building of Hengyuan were pledged for the bank loans. (Also see Notes 8 and
9)
 
 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 $347,589. Under this guarantee contract, a land use right and an
office building of Hengyuan were pledged for the bank loans. (Also see
Notes 8 and 9)
  NOTE 15 –COMMITMENT
 
 The
Company has a capital commitment of approximately $571,781 for the construction
of a new plant for Huaxin, a subsidiary of the Company, for production of diesel
engines. The related construction is in progress and the accumulated cost
incurred was recorded as construction in progress in the accompanying balance
sheet as of December 31, 2010.


F-24




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”).




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”.




- 3
-





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 OTCQB under the symbol
“WTFS”.





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 six
months ended December 31, 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 six months ended December 31,
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.




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




- 4
-





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





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





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 measured at fair value on a recurring basis subject to the disclosure
requirements of ASC 820-10 as of December 31, 2010 are as follows:








Fair Value Measurements at Reporting Date
      UsingCarrying
      Value as of
              December
      31, 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
            
            $
            3,875,855
            
            
            $
            3,875,855
            
            
            $
            —
            
            
            $
            —Long-term
      notes payable
            
            $
            275,332
            
            
            
            —
            
            
            $
            275,332
            
            
            $
            —





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 December 31,
2010.




- 6
-





Revenue
Recognition





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





·
            Persuasive
      evidence of an arrangement exists,




·
            Delivery
      has occurred or services have been
rendered,




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




·
            Collectability
      is reasonably assured.




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





The
Company offers warranties on its products for periods between six and twelve
months after the sale. The Company estimates the warranty reserves based on
historical records and identical or similar types on the market. Warranty
expenses related to product sales are charged to the condensed consolidated
statements of income and comprehensive income in the period in which sales is
recognized. During the six months ended December 31, 2010 and 2009, warranty
expense was $281,144 and $77,765, respectively, and is included in selling and
marketing expenses in the accompanying condensed consolidated statements of
income and comprehensive income.





Foreign
Currency Translation





The
accompanying condensed consolidated financial statements are presented in United
States dollars. The functional currency of the Company is the Renminbi (RMB).
Capital accounts of the condensed 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.




December
      31,
              2010
            
            
            June
      30,
              2010
            
            
            December
      31,
              2009Period
      ended RMB: US$ exchange rate
            
            
            6.6118
            
            
            
            6.8086
            
            
            
            —Average
      RMB:  US$ exchange rate for three months ended
            
            
            6.6670
            
            
            
            —
            
            
            
            6.8360Average
      RMB:  US$ exchange rate for six months ended
            
            
            6.7237
            
            
            
            —
            
            
            
            6.8386





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$ at
the rates used in translation.





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 six months ended December
31, 2010 and 2009.





Segment
and Geographic Reporting





The
Company operates in one business segment, the design, development, manufacture,
and commercialization of fuel injection pumps, injectors, multi-cylinder diesel
engines and small generator units mainly in the PRC. The sales of the Company
outside of the PRC were insignificant for the six months ended December 31, 2010
and 2009.




- 7
-




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.





Results
of Operations





Comparison
of Three Months Ended December 31, 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 December 31, 2010 and 2009:




Three
      Months EndedDecember
      31, 2010
            
            
            December
      31, 201009
            
            
            ComparisonsAmount
            
            
            %
      of Revenues
            
            
            Amount
            
            
            %
      of Revenues
            
            
            Change
      in Amount
            
            
            Change
      in %$
            
            
            
            
            
            $
            
            
            
            
            
            $REVENUES,
      NET
            
            
            32,387,892
            
            
            
            100
            %
            
            
            35,750,798
            
            
            
            100
            %
            
            
            (3,362,906
            )
            
            
            (9
            )%COST
      OF GOODS SOLD
            
            
            (25,710,389
            )
            
            
            (79
            )%
            
            
            (28,962,481
            )
            
            
            (81
            )%
            
            
            3,252,092
            
            
            
            (11
            )%GROSS
      PROFIT
            
            
            6,677,503
            
            
            
            21
            %
            
            
            6,788,317
            
            
            
            19
            %
            
            
            (110,814
            )
            
            
            (2
            )%Selling
      and marketing
            
            
            (807,979
            )
            
            
            (2
            )%
            
            
            (849,851
            )
            
            
            (2
            )%
            
            
            41,872
            
            
            
            (5
            )%General
      and administrative
            
            
            (260,016
            )
            
            
            (1
            )%
            
            
            (269,378
            )
            
            
            (1
            )%
            
            
            9,362
            
            
            
            (3
            )%Bad
      debt recoveries
            
            
            480,454
            
            
            
            1
            %
            
            
            74,968
            
            
            
            0.2
            %
            
            
            405,486
            
            
            
            541
            %INCOME
      FROM OPERATIONS
            
            
            6,089,962
            
            
            
            19
            %
            
            
            5,744,056
            
            
            
            16
            %
            
            
            345,906
            
            
            
            6
            %Interest
      expense, net
            
            
            (62,140
            )
            
            
            (0.2
            )%
            
            
            (70,647
            )
            
            
            (0.2
            )%
            
            
            8,507
            
            
            
            (12
            )%Other
      income, net
            
            
            122,565
            
            
            
            0.4
            %
            
            
            4,482
            
            
            
            0.01
            %
            
            
            118,083
            
            
            
            2,635
            %INCOME
      BEFORE INCOME TAXES
            
            
            6,150,387
            
            
            
            19
            %
            
            
            5,677,891
            
            
            
            16
            %
            
            
            472,496
            
            
            
            8
            %INCOME
      TAXES
            
            
            (773,934
            )
            
            
            (2
            )%
            
            
            (961,736
            )
            
            
            (3
            )%
            
            
            187,802
            
            
            
            (20
            )%NET
      INCOME
            
            
            5,376,453
            
            
            
            17
            %
            
            
            4,716,155
            
            
            
            13
            %
            
            
            660,298
            
            
            
            14
            %Foreign
      currency translation gain (loss)
            
            
            846,213
            
            
            
            3
            %
            
            
            (837
            )
            
            
            —
            
            
            
            847,050
            
            
            
            (101,201
            )%OTHER
      COMPREHENSIVE INCOME (LOSS)
            
            
            846,213
            
            
            
            3
            %
            
            
            (837
            )
            
            
            —
            
            
            
            847,050
            
            
            
            (101,201
            )%COMPREHENSIVE
      INCOME
            
            
            6,222,666
            
            
            
            19
            %
            
            
            4,715,318
            
            
            
            13
            %
            
            
            1,507,348
            
            
            
            32
            %






- 8
-




Revenues





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





Three
      Months Ended December 31,2010
            
            
            2009
            
            
            ComparisonsAmount
            
            
            %
      of Revenues
            
            
            Amount
            
            
            %
      of Revenues
            
            
            Change
      in Amount
            
            
            Change
      in %$
            
            
            
            
            
            $
            
            
            
            
            
            $Revenues:Electricity
      pumps
            
            
            2,176,933
            
            
            
            6
            %
            
            
            2,287,466
            
            
            
            7
            %
            
            
            (110,533
            )
            
            
            (5
            )%Multi-cylinder
      pumps
            
            
            7,958,357
            
            
            
            24
            %
            
            
            7,035,818
            
            
            
            20
            %
            
            
            922,539
            
            
            
            13
            %Single-cylinder
      pumps
            
            
            636,195
            
            
            
            2
            %
            
            
            503,532
            
            
            
            1
            %
            
            
            132,663
            
            
            
            26
            %Fuel
      muzzles
            
            
            1,743,203
            
            
            
            5
            %
            
            
            1,563,544
            
            
            
            4
            %
            
            
            179,659
            
            
            
            11
            %Parts
            
            
            203,467
            
            
            
            1
            %
            
            
            229,938
            
            
            
            1
            %
            
            
            (26,471
            )
            
            
            (12
            )%Diesel
      engines
            
            
            14,097,204
            
            
            
            44
            %
            
            
            14,778,186
            
            
            
            41
            %
            
            
            (680,982
            )
            
            
            (5
            )%Generator
      sets
            
            
            5,389,026
            
            
            
            17
            %
            
            
            9,320,180
            
            
            
            26
            %
            
            
            (3,931,154
            )
            
            
            (42
            )%Accessories
            
            
            191,947
            
            
            
            1
            %
            
            
            39,429
            
            
            
            —
            
            
            
            152,518
            
            
            
            387
            %Less:
      sales tax
            
            
            (8,440
            )
            
            
            —
            
            
            
            (7,295
            )
            
            
            —
            
            
            
            (1,145
            )
            
            
            16
            %Total
            
            
            32,387,892
            
            
            
            100
            %
            
            
            35,750,798
            
            
            
            100
            %
            
            
            (3,362,906
            )
            
            
            (9
            )%





Our
revenues decreased by 9% to $32,387,892 for the three months ended December 31,
2010 from $35,750,798 for the three months ended December 31, 2009. This
decrease was primarily attributable to a decrease in the sales of generator
sets, which decreased by 42% and accounted for 17% of our total revenue for the
three months ended December 31, 2010. The main reason for this decline was
attributable to the fact that demand for high-end products with greater power is
growing in the PRC. The Company is also trying to adjust its product mix by
introducing more products with greater engine power to meet this new trend.
Therefore, since July 2010 the Company reduced the production and sales scale
for products of older style diesel engines and generator sets with lower gross
margin as an adjustment to its product structure. Additionally, as a result of
the PRC government’s policy of controlling inflation, development in
infrastructure in the PRC has slowed, which has resulted in less demand in the
market and a decrease in our product sales.





Cost
of Goods Sold





The
principal components of our cost of goods sold are costs of direct materials.
The following table sets forth a breakdown of our cost of goods sold by product
for the three months indicated:





Three
      Months Ended December 31,2010
            
            
            2009
            
            
            ComparisonsAmount
            
            
            %
      of Cost of Goods Sold
            
            
            Amount
            
            
            %
      of Cost of Goods Sold
            
            
            Change
      in Amount
            
            
            Change
      in %$
            
            
            
            
            
            $
            
            
            
            
            
            $Costs
      of Goods Sold:Electricity
      pumps
            
            
            1,864,108
            
            
            
            7
            %
            
            
            1,832,605
            
            
            
            6
            %
            
            
            31,503
            
            
            
            2
            %Multi-cylinder
      pumps
            
            
            5,319,050
            
            
            
            21
            %
            
            
            4,194,088
            
            
            
            14
            %
            
            
            1,124,962
            
            
            
            27
            %Single-cylinder
      pumps
            
            
            616,827
            
            
            
            2
            %
            
            
            359,559
            
            
            
            1
            %
            
            
            257,268
            
            
            
            72
            %Fuel
      muzzles
            
            
            1,577,788
            
            
            
            6
            %
            
            
            1,168,993
            
            
            
            4
            %
            
            
            408,795
            
            
            
            35
            %Parts
            
            
            182,438
            
            
            
            1
            %
            
            
            201,192
            
            
            
            1
            %
            
            
            (18,754
            )
            
            
            (9
            )%Diesel
      engines
            
            
            11,974,795
            
            
            
            46
            %
            
            
            12,963,638
            
            
            
            45
            %
            
            
            (988,843
            )
            
            
            (8
            )%Generator
      sets
            
            
            4,019,254
            
            
            
            16
            %
            
            
            8,215,753
            
            
            
            29
            %
            
            
            (4,196,499
            )
            
            
            (51
            )%Accessories
            
            
            156,129
            
            
            
            1
            %
            
            
            26,653
            
            
            
            —
            
            
            
            129,476
            
            
            
            486
            %Total
            
            
            25,710,389
            
            
            
            100
            %
            
            
            28,962,481
            
            
            
            100
            %
            
            
            (3,252,092
            )
            
            
            (11
            )%





Our cost
of goods sold decreased by 11%, or $3,252,092, to $25,710,389 for the three
months ended December 31, 2010 from $28,962,481 for the three months ended
December 31, 2009. This decrease was in line with the decrease in product sales
during the same period.






- 9
-




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 years
indicated:




Three
      Months Ended December 31,2010
            
            
            2009
            
            
            ComparisonGross
      Profit
            
            
            Gross
      Margin
            
            
            Gross
      Profit
            
            
            Gross
      Margin
            
            
            Change
      in Amount
            
            
            Change
      in Gross Margin$
            
            
            
            
            
            $
            
            
            
            
            
            $Gross
      Profit and Gross Margin:Electricity
      pumps
            
            
            312,825
            
            
            
            14
            %
            
            
            454,861
            
            
            
            20
            %
            
            
            (142,036
            )
            
            
            (6
            )%Multi-cylinder
      pumps
            
            
            2,639,307
            
            
            
            33
            %
            
            
            2,841,730
            
            
            
            40
            %
            
            
            (202,423
            )
            
            
            (7
            )%Single-cylinder
      pumps
            
            
            19,368
            
            
            
            3
            %
            
            
            143,973
            
            
            
            29
            %
            
            
            (124,605
            )
            
            
            (26
            )%Fuel
      muzzles
            
            
            165,415
            
            
            
            9
            %
            
            
            394,551
            
            
            
            25
            %
            
            
            (229,136
            )
            
            
            (16
            )%Parts
            
            
            21,029
            
            
            
            10
            %
            
            
            28,746
            
            
            
            13
            %
            
            
            (7,717
            )
            
            
            (3
            )%Diesel
      engines
            
            
            2,122,409
            
            
            
            15
            %
            
            
            1,814,548
            
            
            
            12
            %
            
            
            307,861
            
            
            
            3
            %Generator
      Sets
            
            
            1,369,772
            
            
            
            25
            %
            
            
            1,104,427
            
            
            
            12
            %
            
            
            265,345
            
            
            
            13
            %Accessories
            
            
            35,818
            
            
            
            19
            %
            
            
            12,776
            
            
            
            32
            %
            
            
            23,042
            
            
            
            (13
            )%Less:
      sales taxes
            
            
            (8,440
            )
            
            
            —
            
            
            
            (7,295
            )
            
            
            —
            
            
            
            (1,145
            )
            
            
            —Total
            
            
            6,677,503
            
            
            
            21
            %
            
            
            6,788,317
            
            
            
            19
            %
            
            
            (110,814
            )
            
            
            2
            %





Although
our gross profit decreased by $110,814 to $6,677,503 for the three months ended
December 31, 2010 as compared to $6,788,317 for the three months ended December
31, 2009, our gross margin for the three months ended December 31, 2010
increased by 2% from the three months ended December 31, 2009. This was mainly
due to the Company’s efforts since July 2010 to adjust its product mix by
introducing more products with higher gross margins and reducing the production
and sales of older style diesel engines and generator sets with lower gross
margins.





Selling
and Marketing Expenses





Our
selling and marketing expenses primarily include sales commissions, after-sales
services fees, payroll, travel costs and freight fees. Our selling and marketing
expenses accounted for 2% of our revenues for the three months ended December
31, 2010. Selling and marketing expenses decreased by 5%, or $41,871, to
$807,979 for the three months ended December 31, 2010 from $849,851 for the
three months ended December 31, 2009. This decrease was primarily due to the
decrease in sales commissions to employees of $254,833.




- 10
-




General
and Administrative Expenses





Our
general and administrative expenses consist primarily of payroll, consulting
fees,property
depreciation, entertainment fees, office general expenses, labor insurance fees,
travel costs, land usage taxes, welfare fees and land use rights
amortization.





Our
general and administrative expenses decreased by 3%, or $9,362, to $260,016 for
the three months ended December 31, 2010 from $269,378 for the three months
ended December 31, 2009. This decrease was primarily due to the decrease in
office expenses and travel costs of $6,784, in the aggregate. Our general and
administrative expenses were approximately 1% of revenues, which has remained
stable from the three months ended December 31, 2009.





Interest
Expense, Net





For the
three months ended December 31, 2010 and 2009, interest expense was $62,140 and
$70,647, or 0.2% and 0.20% of our revenues, respectively. Interest expense
decreased by 12%, or $8,507, to $62,139 for the three months ended December 31,
2010 from $70,647 for the three months ended December 31, 2009. The decrease in
interest expense was primarily attributable to the decrease in bank loans of
$912,530.





Other
Income (Expense), Net





Other
income was $122,565 for the three months ended December 31, 2010 compared to
other income of $4,482 for the three months ended December 31, 2009. This was
primarily due to a gain of $90,276 from waived accounts payable for the three
months ended December 31, 2010.





Income
Taxes





Our
income tax expenses decreased by 20%, or $187,802, to $773,934 for the three
months ended December 31, 2010 from $961,736 for the three months ended December
31, 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 13% and 17% for the three months ended December 31, 2010 and 2009,
respectively.





Net
Income





Primarily
as a result of the foregoing, our net income increased by 14%, or $660,298, to
$5,376,453 for the three months ended December 31, 2010 from $4,716,155 for the
three months ended December 31, 2009






- 11
-





Comparison
of Six Months Ended December 31, 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 six
months ended December 31, 2010 and 2009:




Six
      Months EndedDecember
      31, 2010
              
              
              December
      31, 2009
              
              
              ComparisonsAmount
              
              
              %
      of Revenues
              
              
              Amount
              
              
              %
      of Revenues
              
              
              Change
      in Amount
              
              
              Change
      in %$
              
              
              
              
              
              $
              
              
              
              
              
              $REVENUES,
      NET
              
              
              62,686,928
              
              
              
              100
              %
              
              
              73,367,699
              
              
              
              100
              %
              
              
              (10,680,771
              )
              
              
              (15
              )%COST
      OF GOODS SOLD
              
              
              (51,367,591
              )
              
              
              (82
              )%
              
              
              (60,590,584
              )
              
              
              (83
              )%
              
              
              9,222,993
              
              
              
              (15
              )%GROSS
      PROFIT
              
              
              11,319,337
              
              
              
              18
              %
              
              
              12,777,115
              
              
              
              17
              %
              
              
              (1,457,778
              )
              
              
              (11
              )%Selling
      and marketing
              
              
              (2,025,097
              )
              
              
              (3
              )%
              
              
              (1,282,423
              )
              
              
              (2
              )%
              
              
              (742,674
              )
              
              
              58
              %General
      and administrative
              
              
              (773,331
              )
              
              
              (1
              )%
              
              
              (562,438
              )
              
              
              (1
              )%
              
              
              (210,893
              )
              
              
              37
              %Bad
      debt recoveries
              
              
              662,974
              
              
              
              1
              %
              
              
              74,909
              
              
              
              0.1
              %
              
              
              588,065
              
              
              
              785
              %INCOME
      FROM OPERATIONS
              
              
              9,183,883
              
              
              
              15
              %
              
              
              11,007,163
              
              
              
              15
              %
              
              
              (1,823,280
              )
              
              
              (17
              )%Interest
      expense, net
              
              
              (203,895
              )
              
              
              (0.33
              )%
              
              
              (176,936
              )
              
              
              (0.24
              )%
              
              
              (26,959
              )
              
              
              15
              %Other
      income (expense), net
              
              
              238,102
              
              
              
              0.4
              %
              
              
              (784
              )
              
              
              —
              
              
              
              238,886
              
              
              
              30,470
              %Refunded
      value added tax
              
              
              3,258,380
              
              
              
              5
              %
              
              
              —
              
              
              
              —
              
              
              
              3,258,380
              
              
              
              —INCOME
      BEFORE INCOME TAXES
              
              
              12,476,470
              
              
              
              20
              %
              
              
              10,829,443
              
              
              
              15
              %
              
              
              1,647,027
              
              
              
              15
              %INCOME
      TAXES
              
              
              (1,643,137
              )
              
              
              (3
              )%
              
              
              (1,688,892
              )
              
              
              (2
              )%
              
              
              45,755
              
              
              
              (3
              )%NET
      INCOME
              
              
              10,833,333
              
              
              
              17
              %
              
              
              9,140,551
              
              
              
              12
              %
              
              
              1,692,782
              
              
              
              19
              %Foreign
      currency translation gain (loss)
              
              
              1,820,017
              
              
              
              3
              %
              
              
              28,049
              
              
              
              —
              
              
              
              1,791,968
              
              
              
              6,389
              %OTHER
      COMPREHENSIVE INCOME (LOSS)
              
              
              1,820,017
              
              
              
              3
              %
              
              
              28,049
              
              
              
              —
              
              
              
              1,791,968
              
              
              
              6,389
              %COMPREHENSIVE
      INCOME
              
              
              12,653,350
              
              
              
              20
              %
              
              
              9,168,600
              
              
              
              12
              %
              
              
              3,484,750
              
              
              
              38
              %




Revenues





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





Six
      Months Ended December 31,2010
            
            
            2009
            
            
            ComparisonsAmount
            
            
            %
      of Revenues
            
            
            Amount
            
            
            %
      of Revenues
            
            
            Change
      in Amount
            
            
            Change
      in %$
            
            
            
            
            
            $
            
            
            
            
            
            $Revenues:Electricity
      pumps
            
            
            5,218,753
            
            
            
            8
            %
            
            
            4,615,498
            
            
            
            6
            %
            
            
            603,255
            
            
            
            13
            %Multi-cylinder
      pumps
            
            
            18,413,935
            
            
            
            29
            %
            
            
            14,420,813
            
            
            
            20
            %
            
            
            3,993,122
            
            
            
            28
            %Single-cylinder
      pumps
            
            
            1,084,622
            
            
            
            2
            %
            
            
            1,311,217
            
            
            
            2
            %
            
            
            (226,595
            )
            
            
            (17
            )%Fuel
      muzzles
            
            
            3,271,893
            
            
            
            5
            %
            
            
            3,546,264
            
            
            
            5
            %
            
            
            (274,371
            )
            
            
            (8
            )%Parts
            
            
            372,155
            
            
            
            1
            %
            
            
            407,500
            
            
            
            1
            %
            
            
            (35,345
            )
            
            
            (9
            )%Diesel
      engines
            
            
            23,030,204
            
            
            
            37
            %
            
            
            30,234,425
            
            
            
            41
            %
            
            
            (7,204,221
            )
            
            
            (24
            )%Generator
      sets
            
            
            11,013,857
            
            
            
            18
            %
            
            
            18,707,401
            
            
            
            25
            %
            
            
            (7,693,544
            )
            
            
            (41
            )%Accessories
            
            
            297,929
            
            
            
            —
            
            
            
            138,589
            
            
            
            —
            
            
            
            159,340
            
            
            
            115
            %Less:
      sales tax
            
            
            (16,420
            )
            
            
            —
            
            
            
            (14,008
            )
            
            
            —
            
            
            
            (2,412
            )
            
            
            17
            %Total
            
            
            62,686,928
            
            
            
            100
            %
            
            
            73,367,699
            
            
            
            100
            %
            
            
            (10,680,771
            )
            
            
            (15
            )%






- 12
-




Our
revenues decreased by 15% to $62,686,928 for the six months ended December 31,
2010 from $73,367,699 for the six months ended December 31, 2009. This decrease
was primarily attributable to a decrease in the sales of generator sets, which
decreased by 41% and accounted for 18% of our total revenue for the six months
ended December 31, 2010. The main reason for this decline was attributable to
the declining
demand for our products with lower power. We are adjusting the product mix by
introducing more products with greater power. Since July 2010 we havereduced the production and sales of older style diesel engines and
generator sets. Additionally, as a result of the PRC government’s policy of
controlling inflation, development in infrastructure in the PRC has slowed,
which has resulted in less demand in the market and a decrease in our product
sales.





Cost
of Goods Sold





The
principal components of our cost of goods sold are costs of direct materials.
The following table sets forth a breakdown of our cost of goods sold by product
for the six months indicated:





Six
      Months Ended December 31,2010
            
            
            2009
            
            
            ComparisonsAmount
            
            
            %
      of Cost of Goods Sold
            
            
            Amount
            
            
            %
      of Cost of Goods Sold
            
            
            Change
      in Amount
            
            
            Change
              in
      %$
            
            
            
            
            
            $
            
            
            
            
            
            $Costs
      of Goods Sold:Electricity
      pumps
            
            
            4,123,085
            
            
            
            8
            %
            
            
            3,535,106
            
            
            
            6
            %
            
            
            587,979
            
            
            
            17
            %Multi-cylinder
      pumps
            
            
            12,913,356
            
            
            
            25
            %
            
            
            9,308,518
            
            
            
            15
            %
            
            
            3,604,838
            
            
            
            39
            %Single-cylinder
      pumps
            
            
            969,005
            
            
            
            2
            %
            
            
            1,204,487
            
            
            
            2
            %
            
            
            (235,482
            )
            
            
            (20
            )%Fuel
      muzzles
            
            
            2,912,647
            
            
            
            6
            %
            
            
            2,764,002
            
            
            
            5
            %
            
            
            148,645
            
            
            
            5
            %Parts
            
            
            364,155
            
            
            
            1
            %
            
            
            367,867
            
            
            
            1
            %
            
            
            (3,712
            )
            
            
            (1
            )%Diesel
      engines
            
            
            20,508,904
            
            
            
            40
            %
            
            
            26,630,165
            
            
            
            44
            %
            
            
            (6,121,261
            )
            
            
            (23
            )%Generator
      sets
            
            
            9,321,179
            
            
            
            18
            %
            
            
            16,657,370
            
            
            
            27
            %
            
            
            (7,336,191
            )
            
            
            (44
            )%Accessories
            
            
            255,260
            
            
            
            —
            
            
            
            123,069
            
            
            
            —
            
            
            
            132,191
            
            
            
            107
            %Total
            
            
            51,367,591
            
            
            
            100
            %
            
            
            60,590,584
            
            
            
            100
            %
            
            
            (9,222,993
            )
            
            
            (15
            )%





Our cost
of goods sold decreased by 15%, or $9,222,994, to $51,367,591 for the six months
ended December 31, 2010 from $60,590,584 for the six months ended December 31,
2009. This decrease was in line with the decrease in product sales during the
same period.




- 13
-





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 years
indicated:





Six
      Months Ended December 31,2010
            
            
            2009Gross
      Profit
            
            
            Gross
      Margin
            
            
            Gross
      Profit
            
            
            Gross
      Margin
            
            
            Change
      in Amount
            
            
            Change
              in
      Gross Margin$
            
            
            
            
            
            $
            
            
            
            
            
            $Gross
      Profit and Gross Margin:Electricity
      pumps
            
            
            1,095,668
            
            
            
            21
            %
            
            
            1,080,392
            
            
            
            23
            %
            
            
            15,276
            
            
            
            (2
            )%Multi-cylinder
      pumps
            
            
            5,500,579
            
            
            
            30
            %
            
            
            5,112,295
            
            
            
            35
            %
            
            
            388,284
            
            
            
            (5
            )%Single-cylinder
      pumps
            
            
            115,617
            
            
            
            11
            %
            
            
            106,730
            
            
            
            8
            %
            
            
            8,887
            
            
            
            3
            %Fuel
      muzzles
            
            
            359,246
            
            
            
            11
            %
            
            
            782,262
            
            
            
            22
            %
            
            
            (423,016
            )
            
            
            (11
            )%Parts
            
            
            8,000
            
            
            
            2
            %
            
            
            39,633
            
            
            
            10
            %
            
            
            (31,633
            )
            
            
            (8
            )%Diesel
      engines
            
            
            2,521,300
            
            
            
            11
            %
            
            
            3,604,260
            
            
            
            12
            %
            
            
            (1,082,960
            )
            
            
            (1
            )%Generator
      sets
            
            
            1,692,678
            
            
            
            15
            %
            
            
            2,050,031
            
            
            
            11
            %
            
            
            (357,353
            )
            
            
            4
            %Accessories
            
            
            42,669
            
            
            
            14
            %
            
            
            15,520
            
            
            
            11
            %
            
            
            27,149
            
            
            
            3
            %Less:
      sales taxes
            
            
            (16,420
            )
            
            
            —
            
            
            
            (14,008
            )
            
            
            —
            
            
            
            (2,412
            )
            
            
            —Total
            
            
            11,319,337
            
            
            
            18
            %
            
            
            12,777,115
            
            
            
            17
            %
            
            
            (1,457,778
            )
            
            
            1
            %





Although
our gross profit decreased by $1,457,778 to $11,319,337 for the six months ended
December 31, 2010 as compared with $12,777,115 for the six months ended December
31, 2009, our margin for the six months ended December 31, 2010 increased by 1%
from the six months ended December 31, 2009. This was mainly due to the
Company’s efforts since July 2010 to adjust its product structure by introducing
more products with higher gross margins and reducing the production and sales
scale for products of older style diesel engines and generator sets with lower
gross margins.





Selling
and Marketing Expenses





Our
selling and marketing expenses primarily include sales commissions, after-sales
services fees, payroll, travel costs and freight fees. Our selling and marketing
expenses accounted for 3% of our revenues for the six months ended December 31,
2010. Selling and marketing expenses increased by 58%, or $742,674, to
$2,025,097 for the six months ended December 31, 2010 from $1,282,423 for the
six months ended December 31, 2009. This increase was primarily due to an
increase of $473,000 in total in after-sales services fee and promotional fees
in connection with sales activities.





General
and Administrative Expenses





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





Our
general and administrative expenses increased by 37%, or $210,893, to $773,331
for the six months ended December 31, 2010 from $562,438 for the six months
ended December 31, 2009. This increase was primarily due to the increase of
$167,798 in the aggregate in bad debt provision and accounting service charge in
connection with being a publicly traded Company. Our general and administrative
expenses were approximately 1% of revenues, which has remained stable from the
six months ended December 31, 2009.





Interest
Expense, Net





For the
six months ended December 31, 2010 and 2009, interest expense was $203,895 and
$176,936, or 0.33% and 0.24% of our revenues, respectively. Interest expense
increased by 15%, or $26,959, to $203,895 for the six months ended December 31,
2010 from $176,936 for the six months ended December 31, 2009. The increase in
interest expense was primarily attributable to an increase of $617,044 in notes
payable bearing interest.




- 14
-





Other
Income (Expense), Net





Other
income was $238,102 for the six months ended December 31, 2010 compared to other
expense of $784 for the six months ended December 31, 2009. This was primarily
due to a subsidy of $77,199 and a gain of $86,811 from waived accounts
payable.





Refunded
Value Added Tax





To honor
the Company’s on-going contributions to the local economy and its achievement of
becoming a public company in the U.S., the local tax bureau exempted the
Company’s output VAT payable of $3,258,380, which was recorded as refunded value
added tax in the accompanying condensed consolidated statements of income and
comprehensive income for the six months ended December 31, 2010.





Income
Taxes





Our
income tax expenses decreased by 3%, or $45,755, to $1,643,137 for the six
months ended December 31, 2010 from $1,688,892 for the six months ended December
31, 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 13% and 16% for the six months ended December 31, 2010 and 2009,
respectively.





Net
Income





Primarily
as a result of the foregoing, our net income increased by 19%, or $1,692,782, to
$10,833,333 for the six months ended December 31, 2010 from $9,140,551 for the
six months ended December 31, 2009.





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:




Six
      months ended December 31,2010
            
            
            2009$
            
            
            $Net
      cash provided by operating activities
            
            
            1,690,471
            
            
            
            13,125,252Net
      cash (used in) investing activities
            
            
            (3,455,036
            )
            
            
            (14,183,185
            )Net
      cash (used in) provided by financing activities
            
            
            (464,207
            )
            
            
            994,751Net
      (decrease) in cash and cash equivalents
            
            
            (2,228,772
            )
            
            
            (63,182
            )Effect
      of exchange rate changes on cash
            
            
            1,740,813
            
            
            
            55,205Cash
      and cash equivalents at beginning of period
            
            
            3,399,360
            
            
            
            127,576Cash
      and cash equivalents at end of period
            
            
            2,911,401
            
            
            
            119,599





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.




- 15
-




Liquidity





Operating
Activities





Net cash
provided by 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 such as accounts receivable, prepayments, deposits and other
receivables, 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 $1,690,471 for the six months ended
December 31, 2010, which is primarily attributable to our net income of
$10,833,333, adjusted by increased in value added tax payable of $10,052,818 and
increase in taxes payable of $1,459,542, offset by decrease in accounts
receivable of $8,636,128, decrease in inventories of $8,866,033,decrease in refunded value added
tax of $3,258,380 and decrease in prepayments for goods of
$1,348,151.





Net cash
provided by operating activities was $13,125,252 for the six months ended
December 31, 2009, which is primarily attributable to our net income of
$9,140,551, adjusted by an increase in accounts payable of $636,349, an increase
in value added tax payable of $12,188,453 and an increase in taxes payable of
$1,693,117, offset by a decrease in accounts receivable of $809,078, a decrease
in inventories of $8,353,060 and a decrease in other payable of
$680,197.





Investing
Activities





Net cash
used in investing activities primarily consists of purchases of plant and
equipment, purchases of construction in progress, and notes
receivable.





Net cash
used in investing activities was $3,455,036 for the six months ended December
31, 2010, which is primarily attributable to increase in issuance of notes
receivable of $47,738,078, offset by a decrease in repayment of notes receivable
of $44,414,853.





Net cash
used in investing activities was $14,183,185 for the six months ended December
31, 2009, which is primarily attributable to an increase in issuance of notes
receivable of $64,904,916 and an increase in purchases of construction in
progress of $682,561, offset by a decrease in repayment of notes receivable of
$51,499,380.





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 and repayment of long-term debt.





Net cash
used in financing activities was $464,207 for the six months ended December 31,
2010, which is primarily attributable to an increase in repayments of short-term
loans of $1,725,248, offset by a decrease in proceeds from short-term loans of
$743,641 and a decrease in proceeds from notes payable of $654,601.





Net cash
provided by financing activities was $994,751 for the six months ended December
31, 2009, which is primarily attributable to an increase in proceeds from
short-term loans of $2,923,558 and an increase in proceeds from notes payable of
$1,527,559, offset by a decrease in repayments of short-term loans of $2,335,923
and a decrease in repayments of note payable of $1,018,846.





Working
Capital





Working
capital is current liabilities deducted from current assets.




- 16
-





Our
working capital was $63,219,425 for the six months ended December 31, 2010, as
compared with $50,735,680 for the year ended June 30, 2010, which is primarily
attributable to an increase in cash and cash equivalents of $2,911,401, an
increase in accounts receivable of $68,920,330, an increase in inventories of
$14,450,349, an increase in notes receivable of $4,026,283 and an increase in
prepayments for goods of $5,170,271, offset by a decrease in accounts payable of
$5,121,746, a decrease in short-term bank loans of $1,966,182, a decrease in
notes payable of $1,632,031, a decrease in income tax payable of $6,449,705, a
decrease in other payables of $1,063,228 and a decrease in value added tax
payable of $13,726,279.





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 December 31, 2010,
and the effect these obligations are expected to have on our liquidity and cash
flows in future periods.





Payments
      Due by PeriodTotal
            
            
            Less
      than
              1
      year
            
            
            Over
      1 yearContractual
      Obligations:Bank
      Indebtedness
            
            $
            1,966,182
            
            
            $
            1,966,182
            
            
            $
            —Notes
      payable
            
            
            1,907,363
            
            
            
            1,632,031
            
            
            
            275,332Construction
      In Processing
            
            
            571,781
            
            
            
            571,781
            
            
            —Total
      Contractual Obligations:
            
            $
            4,445,326
            
            
            $
            4,169,994
            
            
            $
            275,332





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.





The
Company has a capital commitment of approximately $571,781 for the construction
of the new production line in connection with the new plant as of December 31,
2010.





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
$47,614. 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 $347,589. 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 December 31, 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.




- 17
-





ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




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.





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 December 31, 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 December 31, 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 December 31, 2010, there was no pending or outstanding material litigation
with the Company.






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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 December 31, 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.




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, 2010






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





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






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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: February
      14, 2011
            By:
            /s/
      Dianjun LiuName:
      Dianjun LiuIts:
      President, Chief Executive
              Officer
      and Principal Executive
              OfficerDate: February
      14, 2011
            By:
            /s/
      Chenglin WangName:
      Chenglin WangIts:
      Chief Financial Officer,
              Corporate
      Secretary, and Principal
              Financial
      and Accounting Officer




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