U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K




(MARK
ONE)


x
            ANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the Fiscal Year Ended March 31, 2010




OR





 ̈
            TRANSITION REPORT PURSUANT TO
      SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the Transition Period from _______________ to _________________




Commission
file number: 000-52235




LIANDI
CLEAN TECHNOLOGY INC.




(Exact
name of Registrant as Specified in Its Charter)





NEVADA
                  
                  75-2955368(State or Other Jurisdictionof Incorporation or Organization)
                  
                  (I.R.S. Employer
      Identification No.)4th
      Floor Tower B. Wanliuxingui Building, No. 28
                    Wanquanzhuang
      RoadHaidian
      District, Beijing, 100089 China100089(Address of principal executive offices)
                  
                  (Zip Code)




Registrant’s
telephone number, including area code:


(86)
10-5872-0171




SECURITIES
REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:   NONE


SECURITIES
REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:




COMMON
STOCK, PAR VALUE $0.001 PER SHARE




Name of
each exchange on which registered: The OTC Bulletin Board




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  ̈  Yes  x
  No




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.   ̈  Yes  x  No




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.  x 
Yes     ̈  No




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes  ̈ No  ̈




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405) is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  £




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





Large accelerated
              filer  ̈
            Accelerated
              filer  ̈
            Non-accelerated  filer  ̈
            Smaller reporting
              company x(Do not check if a smaller reporting company)




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




The
aggregate market value of the shares of common stock, par value $0.001 per
share, of the registrant held by non-affiliates on June 30, 2009 was $226,738,
which was computed upon the basis of the closing price on that
date.




There
were 29,358,772 shares of common stock of the registrant outstanding as of June
21, 2010.







TABLE
OF CONTENTS




PART
      I
                                      
                                      
                                      
                                      
                                      2Item
      1
                                      Business
                                      
                                      
                                      2Item
      1A.
                                      Risk
      Factors
                                      
                                      
                                      20Item
      1B.
                                      Unresolved
      Staff Comments
                                      
                                      
                                      31Item
      2
                                      Properties.
                                      
                                      
                                      31Item
      3
                                      Legal
      Proceedings
                                      
                                      
                                      32PART
      II
                                      
                                      
                                      
                                      
                                      33Item
      4
                                      Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.
                                      
                                      
                                      33Item
      5
                                      Selected
      Financial Data
                                      
                                      
                                      34Item
      6
                                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                      
                                      
                                      34Item
      7
                                      Financial
      Statements and Supplementary Financial Data
                                      
                                      
                                      58Item
      8
                                      Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure.
                                      
                                      
                                      58Item
      8A(T).
                                      Controls
      and Procedures
                                      
                                      
                                      58Item
      8B.
                                      Other
      Information
                                      
                                      
                                      59PART
      III
                                      
                                      
                                      
                                      
                                      60Item
      9
                                      Directors,
      Executive Officers and Corporate Governance
                                      
                                      
                                      60Item
      10
                                      Executive
      Compensation
                                      
                                      
                                      63Item
      11
                                      Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.
                                      
                                      
                                      64Item
      12
                                      Certain
      Relationships and Related Transactions and Director
      Independence
                                      
                                      
                                      66Item
      13
                                      Principal
      Accounting Fees and Services.
                                      
                                      
                                      67PART
      IV
                                      
                                      
                                      
                                      
                                      68Item
      14
                                      EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
                                      
                                      
                                      68


i




INTRODUCTORY
NOTE




Except as otherwise indicated by the
context, references in this Annual Report on Form 10-K (this “Form 10-K”) to the
“Company,” “LianDi,” “we,” “us” or “our” are references to the combined business
of LianDi Clean Technology Inc. and its consolidated
subsidiaries.  References to “Hua Shen HK” are references to our
wholly-owned subsidiary, Hua Shen Trading (International) Ltd.; references to
“China LianDi” are references to our wholly-owned subsidiary, China LianDi Clean
Technology Engineering Ltd.; references to “PEL HK” are to our wholly-owned
subsidiary, Petrochemical Engineering Ltd.; and references to “Beijing JianXin”
are to our wholly-owned subsidiary, Beijing JianXin Petrochemical Technology
Development Ltd. References to “China” or “PRC” are references to the People’s
Republic of China.  References to “RMB” are to Renminbi, the legal
currency of China, and all references to “$” and dollar are to the U.S. dollar,
the legal currency of the United States.




Special
Note Regarding Forward-Looking Statements




This report contains forward-looking
statements and information relating to LianDi Clean Technology Inc. that are
based on the beliefs of our management as well as assumptions made by and
information currently available to us.  Such statements should not be
unduly relied upon.  When used in this report, forward-looking
statements include, but are not limited to, the words “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “plan” and similar expressions, as well as
statements regarding new and existing products, technologies and opportunities,
statements regarding market and industry segment growth and demand and
acceptance of new and existing products, any projections of sales, earnings,
revenue, margins or other financial items, any statements of the plans,
strategies and objectives of management for future operations, any statements
regarding future economic conditions or performance, uncertainties related to
conducting business in China, any statements of belief or intention, and any
statements or assumptions underlying any of the foregoing.  These
statements reflect our current view concerning future events and are subject to
risks, uncertainties and assumptions.  There are important factors
that could cause actual results to vary materially from those described in this
report as anticipated, estimated or expected, including, but not limited
to: competition in the industry in which we operate and the impact of such
competition on pricing, revenues and margins, volatility in the securities
market due to the general economic downturn; Securities and Exchange Commission
(the “SEC”) regulations which affect trading in the securities of “penny
stocks,” and other risks and uncertainties.  Except as required by
law, we assume no obligation to update any forward-looking statements publicly,
or to update the reasons actual results could differ materially from those
anticipated in any forward- looking statements, even if new information becomes
available in the future.  Depending on the market for our stock and
other conditional tests, a specific safe harbor under the Private Securities
Litigation Reform Act of 1995 may be available.  Notwithstanding the
above, Section 27A of the Securities Act of 1933, as amended (the “Securities
Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) expressly state that the safe harbor for forward-looking
statements does not apply to companies that issue penny
stock.  Because we may from time to time be considered to be an issuer
of penny stock, the safe harbor for forward-looking statements may not apply to
us at certain times.


1




PART
I




Item
      1
            Business




Company
Background





We are a holding company that provides
downstream flow equipment and engineering services to China’s leading petroleum
and petrochemical companies.  Prior to the consummation of the share
exchange transaction described below, we were a shell company with nominal
operations and nominal assets. Our wholly-owned subsidiary, China LianDi Clean
Technology Engineering Ltd. (“China LianDi”), was established in July 2004 to
serve the largest Chinese petroleum and petrochemical companies. Through our
four operating subsidiaries, which are Hua Shen Trading (International) Ltd.
(“Hua Shen HK”), Petrochemical Engineering Ltd. (“PEL HK”), Bright Flow Control
Ltd. and Beijing JianXin Petrochemical Engineering Ltd. (“Beijing JianXin”), we:
(i) distribute a wide range of petroleum and petrochemical valves and equipment,
including unheading units for the delayed coking process, as well as provide
associated value-added technical services; (ii) provide systems integration
services; and (iii) develop and market proprietary optimization software for the
polymerization process. Our products and services are provided both
bundled or individually, depending on the needs of the
customer.




We are engaged in modernizing China’s
delayed coking industry, and, as such, are strategically positioned to
capitalize on growth opportunities as new technologies enter our market. For
example, in 2011, we plan to install and assemble enclosed unheading units for
the delayed coking process at a facility in China (unheading units are used in
delayed coking to “unhead” or open the coke drum for the removal of the residual
coke). This would represent the first facility of its kind in the
PRC.




We intend to purchase a 16.5-acre land
parcel in the Tianjin Port Industry Area for approximately $5.9 million. We
intend to use the land to construct a new manufacturing facility for our
state-of-the-art, totally enclosed delayed coking unheading units. We expect the
purchase to close within the next 60 days. Upon the closing of the land
purchase, a three-month site preparation project will begin as will our design
of the manufacturing facility. The completion of the new facility will be
accomplished in two major phases: Phase I includes the installation of major
utility infrastructure, which includes water, gas and electricity supply and
Phase II includes the construction of the manufacturing facility. Phase I is
expected to be completed by the end of 2010. Production is expected to begin by
the third quarter of calendar year 2011, with five initial shipments of
unheading units planned for the first full year of production, which is expected
to contribute at least $10 million in revenues for our fiscal year ending March
31, 2012.




Delayed coking refers to a process used
in oil refining. In simple terms, oil refining is a cooking process where crude
oil is subject to extremely high temperatures. When the oil is “cooked,” it will
leave crumbs at the bottom of the refinery. These crumbs are coke. Coke is a
valuable commodity that can be sold for profit. The key is how to clean up the
coke that accumulates at the bottom of the oil refinery plant so that it can be
sold to third parties. Traditionally, China has hired workers with shovels who
shovel the coke into a drum. However, this is a highly inefficient process and
harms the environment because the coke will seep into the air, seep into the
water supply and will seep into the respiratory systems of the workers. We are
modernizing the industry by adapting U.S. technology which automates this
process. This technology automates the process of cleaning up the coke, and in
so doing, minimizes the harmful impact to workers and to the
environment.




Our objectives are to enhance
the reputation of our brand, continue our growth and strengthen our position in
clean technology for the petroleum and petrochemical industry in China. In the
next three years, we intend to strengthen our optimization software for the
polymerization reaction of ethylene production, enhancing its function and
reliability. We intend to leverage our current relationships in the petroleum
and petrochemical industry to become a leading player in clean technology by
bringing totally enclosed unheading units to China. We also intend to expand and
further develop our long-term relationships with our customers, helping them to
reduce their production costs and increase the efficiency and safety of their
facilities.


2




Our
Operating Subsidiaries




Hua Shen HK is a company organized
under the laws of Hong Kong Special Administrative Region of the PRC and was
incorporated in 1999. Beginning in 2005, Hua Shen HK started to distribute
industrial equipment for the petroleum and petrochemical industry. Currently,
Hua Shen HK has become a qualified supplier for China Petroleum & Chemical
Corporation, China National Petroleum Corporation, China National Offshore Oil
Corporation, SinoChem Corporation and ChemChina Group Corporation.




PEL HK was established in Hong Kong
under the laws of Hong Kong Special Administrative Region of the PRC in 2007.
This company primarily distributes petroleum and petrochemical equipment and
provides related technical services. Currently, PEL HK has become a qualified
supplier for China National Petroleum Corporation, China National Offshore Oil
Corporation, SinoChem Corporation, ChemChina Group Corporation and China Shenhua
Energy Company Limited.




Bright Flow Control Ltd. was
established in Hong Kong in 2007. This company is mainly engaged in the
distribution of petrochemical equipment.




Beijing JianXin was incorporated in
Beijing, PRC in May 2008, and is a wholly-owned subsidiary of PEL HK. Beijing
JianXin is mainly engaged in distributing industrial oil and gas equipment and
providing related technical and engineering services, developing and marketing
optimization software for the polymerization process and providing clean
technology solutions for the delayed coking industry. Our customers are large
domestic Chinese petroleum and petrochemical companies and other energy
companies. Currently, Beijing JianXin has five software copyrights and is
qualified as a “software enterprise” that can benefit from an income tax
exemption for two years beginning with its first profitable year and a 50% tax
reduction to a rate of 12.5% for the subsequent three years. We believe this
helps strengthen our position as an industry leader in the clean technology area
and contribute to our growth.




Corporate
Structure




Our
current corporate structure is set forth below:







3




Name
Change




Prior to April 1, 2010, our company
name was Remediation Services, Inc. For the sole purpose of changing our name,
on April 1, 2010, we merged into a newly-formed, wholly owned subsidiary
incorporated under the laws of Nevada called LianDi Clean Technology Inc. As a
result of the merger, our corporate name was changed to LianDi Clean Technology
Inc.




Share
Exchange Agreement with China LianDi and Private Placement




Share
Exchange Agreement




On February 26, 2010 (the “Closing
Date”), we entered into a Share Exchange Agreement (the “Exchange Agreement”),
by and among (i) China LianDi and China LianDi’s shareholders, SJ Asia Pacific
Ltd., a company organized under the laws of the British Virgin Islands, which is
a wholly-owned subsidiary of SJI Inc., a Jasdaq listed company organized under
the law of Japan, China Liandi Energy Resources Engineering Technology Limited,
a company organized under the laws of the British Virgin Islands, Hua Shen
Trading (International) Limited, a company organized under the laws of the
British Virgin Islands, Rapid Capital Holdings Limited, a company organized
under the laws of the British Virgin Islands, Dragon Excel Holdings Limited, a
company organized under the laws of the British Virgin Islands, and TriPoint
Capital Advisors, LLC, a limited liability company organized under the laws of
Maryland (collectively, the “China LianDi Shareholders”), who together owned
shares constituting 100% of the issued and outstanding ordinary shares of China
LianDi (the “China LianDi Shares”) and (ii) Reed Buley, our former principal
stockholder. Pursuant to the terms of the Exchange Agreement, the China LianDi
Shareholders transferred to us all of the China LianDi Shares in exchange for
27,354,480 shares of our common stock (such transaction, the “Share Exchange”).
As a result of the Share Exchange, we are now a holding company, which through
our operating companies in the PRC, provides downstream flow equipment and
engineering services to the leading petroleum and petrochemical companies in the
PRC.




Immediately prior to the Share
Exchange, 4,690,000 shares of our common stock then outstanding were cancelled
and retired, so that immediately prior to the private placement described below,
we had 28,571,430 shares issued and outstanding. China LianDi also deposited
$275,000 into an escrow account which amount was paid to Reed Buley, owner of
the cancelled shares, as a result of the Share Exchange having been
consummated.




Private
Placement




On February 26, 2010 and immediately
following the Share Exchange, we entered into a securities purchase agreement
with certain investors (collectively, the “Investors”) for the issuance and sale
in a private placement of 787,342 units (the “Units”) at a purchase price of $35
per Unit, consisting of, in the aggregate, (a) 7,086,078 shares of Series A
convertible preferred stock, par value $0.001 per share (the “Series A Preferred
Stock”) convertible into the same number of shares of common stock (the
“Conversion Shares”), (b) 787,342 shares of common stock (the “Issued Shares”),
(c) three-year Series A Warrants (the “Series A Warrants”) to purchase up to
1,968,363 shares of common stock, at an exercise price of $4.50 per share (the
“Series A Warrant Shares”), and (d) three-year Series B Warrants (the “Series B
Warrants” and, together with the Series A Warrants, the “Warrants”) to purchase
up to 1,968,363 shares of common stock, at an exercise price of $5.75 per share
(the “Series B Warrant Shares” and, together with the Series A Warrant Shares,
the “Warrant Shares”), for aggregate gross proceeds of approximately $27.56
million (the “Private Placement”). The issuance of the Units was exempt from
registration pursuant to Section 4(2) of the Securities Act, and Regulation D or
Regulation S promulgated thereunder.




In connection with the Private
Placement, we also entered into a registration rights agreement (the
“Registration Rights Agreement”) with the Investors, in which we agreed to file
a registration statement with the SEC to register for resale the Issued Shares,
the Conversion Shares and the Warrant Shares within 30 calendar days of the
Closing Date, and to have such registration statement declared effective within
180 calendar days of the Closing Date. We agreed to keep such registration
statement continuously effective under the Securities Act until such date as is
the earlier of the date when all of the securities covered by such registration
statement have been sold or the date on which such securities may be sold
without any restriction pursuant to Rule144. If we do not comply with the
foregoing obligations under the Registration Rights Agreement, we will be
required to pay cash liquidated damages to each investor, at the rate of 2% of
the applicable subscription amount for each 30 day period in which we are not in
compliance; provided, that such liquidated damages will be capped at 10% of the
subscription amount of each investor and will not apply to any shares that may
be sold pursuant to Rule 144 under the Securities Act, or are subject to an SEC
comment with respect to Rule 415 promulgated under the Securities
Act.


4




We also entered into a make good escrow
agreement with the Investors (the “Securities Escrow Agreement”), pursuant to
which China LianDi Energy Resources Engineering Technology Ltd. (the “Principal
Stockholder”), an affiliate of Jianzhong Zuo, our Chief Executive Officer,
President and Chairman, delivered into an escrow account 1,722,311 shares of
common stock (the “Escrow Shares”) to be used as a share escrow for the
achievement of a fiscal year 2011 net income performance threshold of $20.5
million. With respect to the 2011 performance year, if we achieve less than 95%
of the 2011 performance threshold, then the Escrow Shares for such year will be
delivered to the Investors in the amount of 86,115.55 shares (rounded up to the
nearest whole share and pro rata based on the number of shares of Series A
Preferred Stock owned by such Investor at such date) for each full percentage
point by which such threshold was not achieved up to a maximum of 1,722,311
shares. Any Escrow Shares not delivered to any Investor because such Investor no
longer holds shares of Series A Preferred Stock or Conversion Shares, or because
the 2011 performance threshold was met, shall be returned to the Principal
Stockholder.




For the purposes of the Securities
Escrow Agreement, net income is defined in accordance with US GAAP and reported
by us in our audited financial statements for fiscal year ended 2011; provided,
however, that net income for fiscal year ended 2011 shall be increased by any
non-cash charges incurred (i) as a result of the Private Placement, including
without limitation, as a result of the issuance and/or conversion of the Series
A Preferred Stock, and the issuance and/or exercise of the Warrants, (ii) as a
result of the release of the Escrow Shares to the Principal Stockholder and/or
the Investors, as applicable, pursuant to the terms of the Securities Escrow
Agreement, (iii) as a result of the issuance of ordinary shares of the Principal
Stockholder to its PRC shareholders, upon the exercise of options granted to
such PRC shareholders by the Principal Stockholder, as of the date of the
Securities Escrow Agreement, (iv) as a result of the issuance of Warrants to any
placement agent and its designees in connection with the Private Placement, (v)
the exercise of any Warrants to purchase common stock outstanding and (vi) the
issuance under any performance based equity incentive plan that we adopt. Net
income will also be increased to adjust for any cash or non-cash charges
resulting from the payment of dividends on the Series A Preferred Stock in
connection with the Private Placement.




On the Closing Date, we and China
LianDi Energy Resources Engineering Technology Ltd., an affiliate of Jianzhong
Zuo, our Chief Executive Officer, President and Chairman, entered into a lock-up
agreement whereby such entity is prohibited from selling our securities until
six (6) months after the effective date of the registration statement required
to be filed under the Registration Rights Agreement. For one (1) year
thereafter, it will be permitted to sell up to one-twelfth (1/12) of its initial
holdings every month.




Industry
and Market Overview




China
Petroleum and Petrochemical Industries




According to the U.S. Energy
Information Administration Report dated July 2009, we have obtained the
following industry and market overview.




China consumed an estimated 7.8 million
barrels per day (“bbl/d”) of oil in 2008, making it the second-largest oil
consumer in the world behind the United States. During that same year, China
produced an estimated 4.0 million bbl/d of total oil liquids, of which 96
percent was crude oil. China’s net oil imports were approximately 4.1 million
bbl/d in 2009, again making it the second-largest net oil importer in the world
behind the United States. Energy Information Administration forecasts that
China’s oil consumption will continue to grow during 2010, with oil demand
reaching 8.2 million bbl/d in 2010. This anticipated growth of over 390,000
bbl/d between 2008 and 2010 represents 31 percent of the projected world oil
demand growth in non-OECD countries according to the July 2009 Short-Term Energy
Outlook. According to Oil & Gas Journal (“OGJ”), China had 16 billion
barrels of proven oil reserves as of January 2009.




China’s national oil companies (“NOCs”)
wield a significant amount of influence in China’s oil sector. Between 1994 and
1998, the Chinese government reorganized most state-owned oil and gas assets
into two vertically integrated firms: the China National Petroleum Corporation
(“CNPC”) and the China Petroleum and Chemical Corporation (“Sinopec”). These two
conglomerates operate a range of local subsidiaries, and together dominate
China’s upstream and downstream oil markets. CNPC remains the much larger NOC
and is the leading upstream participant in China. CNPC, along with its
publicly-listed arm PetroChina, accounts for roughly 60 percent and 80 percent
of China’s total oil and gas output, respectively. Sinopec, on the other hand,
has traditionally focused on downstream activities such as refining and
distribution with these sectors making up 76 percent of the company’s revenues
in 2007.


5




Additional state-owned oil firms have
emerged in the competitive landscape in China over the last several years. The
China National Offshore Oil Corporation (“CNOOC”), which is responsible for
offshore oil exploration and production, has seen its role expand as a result of
growing attention to offshore zones. Also, the Company has proven to be a
growing competitor to CNPC and Sinopec by not only increasing its oil
exploration and production expenditures in the South China Sea but also
extending its reach into the downstream sector particularly in the southern
Guangdong Province through its recent 300 billion yuan investment plan. The
Sinochem Corporation and CITIC Group have also expanded their presence in
China’s oil sector, although their involvement in the oil sector remains dwarfed
by CNPC, Sinopec, and CNOOC. The government intends to use the stimulus plan to
enhance energy security and strengthen Chinese NOCs’ global position by offering
various incentives to invest in both upstream and downstream oil
markets.




China
Oil Refineries




China had 6.4 million bbl/d of crude
oil refining capacity at 53 facilities as of January 2009, according to OGJ.
China’s National Energy Administration’s goal is to raise refining capacity to
8.8 million bbl/d by 2011. According to the BP Statistical Review of World
Energy, refinery utilization in China increased from 67 percent in 1998 to 89
percent in 2008.




Sinopec and CNPC are historically the
two dominant providers in China’s oil refining sector, accounting for 50 percent
and 35 percent of the capacity, respectively. However, CNOOC entered the
downstream arena and commissioned the company’s first refinery, the 240,000
bbl/d Huizhou plant, in March 2009 in order to process the high-sulfur crudes
from its Bohai Bay fields. Sinochem has also proposed a number of new
refineries, and national oil companies from Kuwait, Saudi Arabia, Russia, and
Venezuela have entered into joint-ventures with Chinese companies to build new
refining facilities. Sinopec and PetroChina plan to commission about 450,000
bbl/d and 400,000 bbl/d, respectively, of expansion and greenfield capacity by
2011. In light of the recent economic downturn, some firms have postponed
launching refinery projects until product demand picks up again. Also, the
National Development and Reform Commission (“NDRC”) outlined in May 2009 that it
plans to eliminate refineries of 20,000 bbl/d with inefficient equipment and ban
any new projects in efforts to encourage economies of scale and energy
efficiency measures. In addition, PetroChina is branching out to acquire
refinery stakes in other countries in efforts to move downstream and secure more
global trading and arbitrage opportunities. The Company recently purchased a
45.5 percent stake in Singapore Petroleum for $1 billion, and received approval
to purchase 49 percent of Nippon Oil’s Osaka refinery in Japan in June
2009.




The expansive refining sector has
undergone modernization and consolidation in recent years, with dozens of small
refineries, accounting for about 20 percent of total fuel output, shut down and
larger refineries expanding and upgrading their existing systems.




China
Oil Prices




The Chinese government decided to
launch a fuel tax and reform of the country’s product pricing mechanism in
December 2008 to tie retail oil product prices more closely to international
crude oil market, attract downstream investment, ensure profit margins for
refiners, and reduce energy intensity caused by distortions in the market
pricing. When international crude oil prices skyrocketed in mid-2008, the capped
fuel prices downstream caused some refiners, especially the smaller refiners, to
cease production causing supply shortfalls and the major NOCs, particularly
Sinopec, to incur substantial profit losses. In order to stem state-refiners’
losses during the first half of last year, the government issued value added tax
rebates on fuel imports and some direct subsidies.




China is currently taking advantage of
the economic recession to liberalize its pricing system and encourage more
market responsiveness. When fuel prices fluctuate more than 4 percent of the
average crude oil price of three grades for over 22 consecutive working days,
the NDRC can alter the ex-refinery price. The government also sets
transportation charges, processing costs, and refining margins (5% when crude
prices are below $80/bbl). Additionally, a consumption tax and value-added tax
is added for gasoline and diesel fuels. These taxes are set to replace six
transportation fees established by local authorities.


6




Imports
of Heavy Crude Oil




China has swelled into the world’s
second-largest consumer of oil. According to government statistics, China’s
imports have grown from about 6 percent of its oil needs a decade ago, to
roughly one-third in 2004 and are forecast to rise to 60 percent by 2020. China
has emerged from being a net oil exporter in the early 1990s to become the
world’s second-largest net importer of oil in 2009. Despite the economic
slowdown in exports and domestic demand in the past year, China’s demand for
energy remains high. China has turned to the Middle East, South America, Russia,
Central Asia and Africa for sources of crude oil. The Middle East remains the
largest source of China’s oil imports, although African countries also
contribute a significant amount. According to FACTS Global Energy, China
imported 3.6 million bbl/d of crude oil in 2008, of which approximately 1.8
million bbl/d (50%) came from the Middle East, 1.1 million bbl/d (30%) from
Africa, 101,000 bbl/d (3%) from the Asia-Pacific region, and 603,000 bbl/d (17%)
came from other countries. In 2008, Saudi Arabia and Angola were China’s two
largest sources of oil imports, together accounting for over one-third of
China’s total crude oil imports. Recently, China has taken bold steps to
significantly increase its oil imports from Venezuela. The Chinese government
has signed contracts with Venezuela for purchase contracts and production
projects, as part of an effort to diversify and increase oil imports from
Venezuela to 1 million bbl/d from the existing 400,000 bbl/d. In addition,
China’s largest oil producer, CNPC and CNOOC have signed agreements to develop
oil and gas resources in Venezuela. The sound relationship between the Chinese
and Venezuelan governments will contribute to a greater number of partnerships
between Chinese oil production companies and the Venezuelan oil and gas
resources, increasing oil imports from Venezuela.




As China diversifies its crude oil
import sources and expands oil production domestically, state-owned refiners
will have to adjust to the changing crude slate. Traditionally, many of China’s
refineries were built to handle relatively light and sweet crude oils, such as
Daqing and other domestic sources. However, the viscosity and specific gravity
of crude oil from South America and Africa are both higher than the other
countries from which China traditionally acquired imports, especially the heavy
crude oil with high resin from Venezuela. Because delayed coking unit technology
is necessary for processing this crude oil, the increase in heavy crude oil
imports will increase demand for unheading units. Furthermore, China’s growing
dependence on heavy crude oil imports from Venezuela will make it necessary for
refineries across China to acquire advanced technology for the delayed coking
process.




China
Environmental Regulations




In recent years, the Chinese government
has made protection of the environment a priority, strengthening its
environmental legislation. In 2005, the Chinese government’s State Environmental
Protection Administration enacted a new, far-reaching regulatory and
environmental initiative including reduced total emissions by 15% and increasing
China’s energy efficiency by 30%. Furthermore, each province in China has
followed the central government’s directive and established their own targets
for pollution issues that affect their province. Most of the provinces pollution
reduction targets have focused on air pollution caused largely by sulfur dioxide
emissions and water pollution. Also, since China entered the World Trade
Organization in 2001 and has begun to play an increasingly larger role in
international politics, the government has been held more accountable for its
climate footprint. At the Copenhagen Climate Conference, the central Chinese
government pledged to cut emissions by 40 percent and is expected to agree to
new targets to reduce pollution at the next U.N. Climate Summit in Mexico City
December 2010.




Our
Principal Products and Services




Our principal products and services
include:




·
            distributing
      a wide range of petroleum and petrochemical valves and equipment,
      includingunheading units for the delayed coking process, as well as
      providing associated value-addedtechnical
  services;




·
            providing
      systems integration services; and




·
            developing
      and marketing proprietary optimization software for the polymerization
      process.




7




Enclosed
Unheading Units




A primary method in the refining
industry of refining crude oil into gasoline, jet and diesel fuel requires a
process known as delayed coking. Delayed coking is the most efficient and
cost-effective solution for refining a range of inferior-grade domestic and
imported crude oil. Delayed coking is a severe form of thermal cracking
requiring high temperatures for an extended period of time, heating crude oil to
high temperatures and pumping it into large pressurized drums. Using a delayed
coking unit, this process breaks the heavy crude oil into lighter, more valuable
fluids which are vaporized and removed, while the solid, unconverted, coal-like
byproduct called “coke” remains in the drum. Due to the extreme temperatures
required in the process and volume of the coke, unheading, or opening both the
bottom and top of the drum to remove the coke, has the potential to be one of
the most dangerous refinery operations and has been the cause of numerous severe
accidents. This portion of delayed coking operations (drum switching and coke
cutting) creates unique hazards, resulting in relatively frequent and serious
accidents due to the significant hands on component required in the process.
Historically, this manual, less efficient and dangerous method has been used in
the process of delayed coking. We are providing a fully automated and totally
enclosed process of delayed coking, eliminating exposure risks for the workers
involved. We believe that this new delayed coking equipment will enjoy broad
adoption by Chinese refineries (broad adoption has already occurred in US and
European markets) due to its improved safety and efficiency.




We have had close relationships with
manufacturers of industrial valves and delayed coking unheading systems. We plan
to install the first totally enclosed unheading units in China in 2011 for
Sinochem Quanzhou. In addition, as part of one of our many potential growth
strategies, we are in discussions to invest in the first facility in China to
manufacture select supporting components and assemble the unheading units for
DeltaValve, a division of Curtiss-Wright Flow Control Corporation
(“DeltaValve”). Investing in a facility like the potential venture with
DeltaValve would allow us to significantly increase our gross margin on the sale
of unheading units.




We intend to purchase a 16.5-acre land
parcel in the Tianjin Port Industry Area for approximately $5.9 million. We
intend to use the land to construct a new manufacturing facility for our
state-of-the-art, totally enclosed delayed coking unheading units. We expect the
purchase to close within the next 60 days. Upon the closing of the land
purchase, a three-month site preparation project will begin as will our design
of the manufacturing facility. The completion of the new facility will be
accomplished in two major phases: Phase I includes the installation of major
utility infrastructure, which includes water, gas and electricity supply and
Phase II includes the construction of the manufacturing facility. Phase I is
expected to be completed by the end of 2010. Production is expected to begin by
the third quarter of calendar year 2011, with five initial shipments of
unheading units planned for the first full year of production, which is expected
to contribute at least $10 million in revenues for our fiscal year ending March
31, 2012.




The DeltaValve unheading unit has
significant safety advantages over all other currently available unheading
equipment because it eliminates exposure risks to personnel and the atmosphere.
With a fully automated system, workers are safely able to conduct unheading
delayed coking remotely and mitigate potential dangers. In addition, these
unheading units significantly increase refinery throughput and lower operation
costs.




An unheading unit with one-million ton
annual capacity can generate a total economic benefit of $7.4 million for our
customers for the following reasons:




·            cost
per unit installation is $3 million, and total cost for an upgraded delayed
coking system is recouped typically within one year;




·            30% – 40%
less expensive to buy than the competing product from Z&J Technologies
GmbH;




·            shorter
cycle times and reduced maintenance expenses;




·            lower
costs for water usage and wastewater treatment;




·            increased
ability to process inferior grades of crude oil; and




·            25%
tax deduction for energy saving and environment-friendly products.




Currently, there are 120 existing
coking units in China that could potentially benefit from a totally enclosed
unheading unit. The number of coking units is expected to grow at a rate of 10%
annually and is projected to have a market size of almost $1 billion over the
next 10 years, of which we expect significant penetration.


8




Distribution
& Technical Services




We distribute hundreds of different
types of valves and related equipment from manufacturers/suppliers such as
Cameron (NYSE: CAM) and Poyam Valves. We also provide related value-added
technical services to manufacturers and petroleum and petrochemical companies.
We provide locally customized technical services for international companies who
sell products in China but who do not have local offices. For these companies,
we offer our services by enlisting our engineers on the ground to provide
localized services for their products. Our technical services include, but are
not limited to: communicating with the R&D arms of the large Chinese oil
companies; verifying and confirming the specification of products; and product
inspecting, maintenance and debugging assistance.




Currently we are negotiating with a
large manufacturer to set up its valve technology service center in China. We
will provide their technical services and conduct marketing campaigns in the
Chinese market. We have also provided technical services to principle European
manufacturers and assisted one to become the vender of block valves for the
second line in the West-East Gas Pipeline Project.




Systems
Integration




We provide systems integration services
for self-control of the chemical production process. This process includes
integration of storage operations and transportation of valve instruments from
tank farms, as well as providing upgrading services of programmable logic
controllers with instrument systems. Currently, we are undertaking systematic
integrations of operations in several chemical plant tank farm
projects.




Software




Polymerization reaction is very
important in the petrochemical process. It converts ethylene, propylene and
other major gas-phase products into solid products which in turn can be further
processed. Polymerization provides raw materials for downstream industries. The
conditions important to the polymerization reaction process are mainly
temperature, pressure, flow, liquid level and the catalyst. Prior to using a new
process or before a catalyst is put into mass production, as well as before
products are officially used, the process needs to be tested. Our software helps
test the processes by producing data collection, performance analysis and
process optimization indications. Polymerization reaction data collection and
analysis software provides production process automation control. Our software
can also be applied to other industries including the coal and steel
industries.




Depending on customers’ needs, our
products and services may be bundled together or provided
individually.




Our
Competitive Strengths




Our
competitive strengths include:




Product
advantages




We import high-quality petroleum and
petrochemical valves and distribute them to our domestic clients who are large
petroleum and petrochemical companies located and operating in China. Our
suppliers are global and reputable industrial equipment manufacturers with
leading technology among their competitors. Our international suppliers include
Cameron, DeltaValve and Poyam Valves. We also work with the R&D subsidiaries
of CNPC and Sinopec, as well as other independent research institutes, to
determine standards in the petroleum and petrochemical industries. Our software
is used by petrochemical companies during the polymerization reaction of
ethylene production for data collection, performance analysis and process
optimization. We believe it has several advantages over similar products,
including lower costs, better quality control, improved process optimization and
customization to individual customers.




9




Client
relationship advantages




Most of the petroleum and petrochemical
companies are very large state-owned enterprises in China which set high
standards and thresholds for products and services providers. We have agreements
with the three largest industry leaders, CNOOC, Sinochem Group and CNPC, to
provide equipment and technical services and have worked closely with them for
almost 10 years. Material terms of the agreements vary, however, our key
management personnel have at least 10-20 years of experience in the industry,
have established broad channels and networks within the industry and have earned
the trust of these large state-owned industry leaders. We have also maintained
strong relationships with our suppliers and research institutions.




Research
and development advantage




We have partnered with the leading
industrial research and development institutions throughout China to develop
standards for the petroleum and petrochemical industries, which has led to the
development of our integrated products and services and their achievement of a
higher level of technological sophistication as compared with our competitors.
Specifically, we have partnered and/or worked with Luoyang Petrochemical
Engineering Corporation and Sinopec Engineering Incorporation, which are R&D
institutions wholly owned by Sinopec; and China Huanqiu Contracting &
Engineering Corporation and China Petroleum Pipeline Engineering Corporation,
which are R&D institutions wholly owned by CNPC. These engineering companies
are actually Sinopec and CNPC’s R&D institutions. These companies assist
Sinopec and CNPC with the design and construction of both new and old production
facilities. Generally, our role focuses on assisting these companies with
locating suitable products from around the world to complete various aspects of
the facilities design. For example, the Company uses its expertise in flow
control equipment to help identify and select valves and other equipment that
meet specific design requirements.




We currently have approximately 120
employees, many from China’s largest petroleum and petrochemical companies and
research and development subsidiaries and possessing extensive technology and
R&D capabilities.




Comprehensive
localized system integration advantage




We have accumulated more than five
years of comprehensive system integration services experience with a relatively
stable base of clients and products and an effective operational team. This
experience has allowed us to emerge as a high-end integrator of industrial
products and related engineering services. We have the ability to understand our
customers’ current systems and needs, and then design the total solution to
integrate international products and technologies with their local
systems.




Clean
technology advantage




We are engaged in modernizing China’s
delayed coking industry by being the first company to bring DeltaValve’s
affordable, environment-friendly, safe and maintenance-free coke-drum enclosed
unheading system to the Chinese marketplace. The delayed coking process produces
more pollution than any other refining step. The totally enclosed unheading
units we distribute and install significantly reduce emissions. Given the
Chinese government’s aggressive industry targets to reduce air pollution,
traditional delayed coking units will have to be updated. In addition, our
product is superior in price, performance and reliability.




Benefit
from income tax policy




Our PRC subsidiary, Beijing JianXin,
has been qualified as a software enterprise by the related government
authorities. Accordingly, Beijing JianXin can benefit from an income tax
exemption for two years beginning with its first profitable year of 2009 and a
50% tax reduction to a rate of 12.5% for the subsequent three years. This tax
benefit will reduce the capital demands in our operating activities and allow us
to invest more funding into long-term projects and to better serve our
clients.




Experienced
workforce




Currently, many of our senior managers
and engineers have significant prior experience in the petroleum and
petrochemical industry. Many of our employees have graduated from petrochemical
based institutions and colleges. Our executive team has over 100 years of
management experience in the aggregate and provides excellent operating and
technical administration for our company.


10




Healthy
financial growth




We are projecting 100% year-to-year net
income growth for fiscal year 2010 ending March 31, 2010, compared with that of
2009, and 67.7% year-to-year projected organic net income growth to $25 million
for fiscal year 2011.




Supplier
Relationships




We distribute high quality products of
international suppliers, which affords us a distinctive reputation and
significant profit. We have close relationships with reputable brand name
manufacturers, and remain the largest distributor of many of their products in
China. For example, we currently have agreements with AMPO S. COOP — Poyam
Valves (“AMPO”) and DeltaValve. Both AMPO and DeltaValve are equipment
suppliers. We have signed an agreement with AMPO dated January 2010, where we
will set up an after-sale services institution in China of AMPO valves and
provide spare parts of AMPO valves to the China market. The agreement is for the
duration of 2 years with the option to sign additional agreements after
expiration. We also recently signed an agreement with DeltaValve dated February
2010 to be an independent distributor for purchase and resale of coker unheading
systems, isolation valves and related spare parts for 2 years.




A description of each of these
agreements is as follows:





After-sale
Services Agreement by and between AMPO S. coop Poyam Valves and Petrochemical
Engineering Limited





On June 17, 2009, we entered into a
two-year agreement with AMPO S. coop Poyam Valves pursuant to which AMPO
appointed us as a provider of after-sale services for AMPO products in China.
Pursuant to this agreement, AMPO provides training to our engineers, who in turn
service AMPO products for customers.  We are prohibited from providing
after-sale services for any competitor of AMPO in any territory where we provide
after-sale services for AMPO, and we warrant our repairs for 6 months. For
service that falls within AMPO’s warranty to its customers, AMPO pays us between
RMB 200 and 600 / hour / person for our engineers’ time, plus travel
costs.  Otherwise, the end-user pays AMPO at negotiated
rates.  Either party may terminate the agreement on three months
notice.





International
Distributor Agreement Between DeltaValve and PetroChemical Engineering
Limited





On February 12, 2010, we entered into a
two-year agreement with Curtiss-Wright Flow Control Corporation, a Delaware
corporation, acting through its DeltaValve Division, pursuant to which
DeltaValve appointed us to act as an independent distributor of certain of its
products in order to market, promote service and sell DeltaValve products in
China.  Pursuant to this agreement, we agreed to purchase at least
$10,000,000 of DeltaValve Coker Unheading Systems, Isolation Valves and related
spares parts per year for resale.  The agreement restricts us from
providing similar services to any entity within China providing competing
products.  DeltaValve may terminate the agreement at will upon 90 days
notice, or otherwise for cause. Upon termination, DeltaValve determines whether
we may sell our existing inventory of its products to end-users or whether we
must sell them to DeltaValve at then current prices less any applicable
discounts or at the net price paid by us, whichever is lower.  Such
sales, as applicable, are our only remedies for the termination or expiration of
the agreement and shall be in lieu of all other claims.




Growth
Strategy




We plan to strengthen our leading
position and achieve rapid growth through the following strategies:




·
            Product
      localization: we plan to localize our products by establishing a
      manufacturing andassembly facility in China, which will significantly
      decrease our costs and increase ourcompetitive
  strength;




·
            Strengthen
      our research and development effort to increase the functions and the
      stability of ouroptimization software to increase the sales volume of our
      software products which have arelatively high gross margin;
      and




·
            Expand
      our distribution channels and network by increasing the sales force to
      collect moreindustrial information and enhance the communication with
      existing potential clients.


11




Competition




We compete against other companies
which seek to provide the Chinese petroleum refinery industry with a wide range
of petroleum and petrochemical valves and equipment and associated technical and
engineering services. Much like us, these companies compete on the basis of
cost, the size of their distribution product portfolio, and level of technical
and engineering expertise. In addition, similar products to those distributed by
us are available from domestic Chinese and foreign manufacturers and compete
with the products in our distribution portfolio.




Z&J Technologies GmbH is a German
industrial valve company and a direct competitor to China LianDi/DeltaValve’s
enclosed unheading units. Honeywell is also a competitor of China LianDi’s
optimization software.




Methods
of Distribution




We maintain aggressive sales channels
and distribution networks in China with an approximately 21 member sales team.
We have spent significant amount of time developing relationships with
international equipment suppliers, and with the PRC’s largest petroleum and
petrochemical companies.




Our
Suppliers




We maintain close relationships with,
and distribute products for large, industry leading valve and equipment
manufacturers, including Cameron, Poyam Valves, Rotork, Perar S.p.A, Kanon
Loading Equipment BV, and DeltaValve. Most of our suppliers renew annually,
though some suppliers have signed multi-year agreements. We expect all existing
supplier relationships will continue on an ongoing basis, and that going forward
we will add new partners to diversify our supplier base.




Significant
Customers




For the fiscal year ended March 31,
2010, our major customer breakdown as a percentage of revenues was as follows:
Sinopec: 51%; CNPC: 40%; and other: 9%. We are dependent on China’s largest
petroleum and petrochemical companies in our distribution business. As we grow
our business, we intend to diversify our customer relationships that can benefit
from our technology and software business.




Research and
Development




We have partnered with the leading
industrial research and development institutions throughout the PRC to develop
standards for the petroleum and petrochemical industries, which has led to the
development of our integrated products and services and their achievement of a
higher level of technological sophistication as compared with our
competitors.




The leading industrial research and
development institutions we have partnered with are Luoyang Petrochemical
Engineering Corporation and Sinopec Engineering Incorporation, which are R&D
institutions wholly owned by Sinopec; and China Huanqiu Contracting &
Engineering Corporation and China Petroleum Pipeline Engineering Corporation,
which are R&D institutions wholly owned by CNPC. These engineering companies
are actually Sinopec and CNPC’s R&D institutions. They assist Sinopec and
CNPC with the design and construction of both new and old production facilities.
During this process, the Company’s role focuses primarily on assisting these
companies with locating suitable products from around the world to complete
various aspects of the facilities design. For example, the Company uses its
expertise in flow control equipment to help identify and select valves and other
equipment that meet specific design requirements.




Specifically, our engineering staff
understands all specifications, budget parameters and functional project
requirements. We then use this understanding to find suitable products and
suppliers. As part of this process, we help our partners reduce costs by
designing and/or improving certain systems, including hydraulic systems, control
systems, supporting bracket, and other systems. Finally, we assist with the
integration of these products within their core products.




We currently have approximately 40
employees dedicated to research and development activities. During the fiscal
year ended March 31, 2010, we spent approximately $91,000 on such
activities.


12




Government
Regulation




Our business operations do not require
any special government licenses or permits.




Compliance
with Environmental Laws




We believe that we are in compliance
with the current material environmental protection requirements. Our costs
attributed to compliance with environmental laws is negligible.




Intellectual
Property




The PRC has adopted legislation
governing intellectual property rights, including patents, copyrights and
trademarks. The PRC is a signatory to the main international conventions on
intellectual property rights and became a member of the Agreement on Trade Related Aspects
of Intellectual Property Rights upon its accession to the WTO in December
2001.




We have five software copyright
certificates issued by the State Copyright Office of the PRC as listed
below:





Names of Software
                
                Registration NumberV1.0
                
                2008SRBJ6676Software
      V1.0 of Data Processing Platform for Chemical Production
      System.V1.0
                
                2009SRBJ5672Software
      V1.0 of Dispatch Management Platform for Oil and Gas
    PipelineV1.0
                
                2009SR036455Software
      V1.0 of Automatic Calibration for Oil and Gas Pipeline Measuring
      StationV1.0
                
                2009SR036454Software
      V1.0 of Data Collection Post-Processing PlatformV1.0
                
                2009SRBJ5783




With this
intellectual property, we believe we can facilitate the services that are in
demand by our customers.




Legal
Proceedings




We are currently not a party to any
material legal or administrative proceedings and are not aware of any pending or
threatened legal or administrative proceedings against us in all material
aspects. We may from time to time become a party to various legal or
administrative proceedings arising in the ordinary course of our
business.




Employees




As of March 31, 2010, we had 124
full-time employees, including 40 in technology and R&D; 39 engineers; 21 in
sales; 6 members of management and 18 others, including accounting,
administration and human resources.




We are compliant with local prevailing
wage, contractor licensing and insurance regulations, and have good relations
with our employees.




As required by PRC regulations, we
participate in various employee benefit plans that are organized by municipal
and provincial governments, including pension, work-related injury benefits,
maternity insurance, medical and unemployment benefit plans. We are required
under PRC laws to make contributions to the employee benefit plans at specified
percentages of the salaries, bonuses and certain allowances of our employees, up
to a maximum amount specified by the local government from time to time. Members
of the retirement plan are entitled to a pension equal to a fixed proportion of
the salary prevailing at the member’s retirement date.


13




Generally, we enter into a standard
employment contract with our officers and managers for a set period of years and
a standard employment contract with other employees for a set period of years.
According to these contracts, all of our employees are prohibited from engaging
in any activities that compete with our business during the period of their
employment with us. Furthermore, the employment contracts with officers or
managers include a covenant that prohibits officers or managers from engaging in
any activities that compete with our business for two years after the period of
employment.




Corporation
Information




Our principal executive offices are
located at Unit 401-405.4/F, Tower B, Wanliuxingui Building, 28 Wanquanzhuang
Road, Haidian District, Beijing, China 100089, Tel: (86) (0)10-5872 0171, Fax:
(86) (0)10-5872 0181.




PRC
Government Regulations




Our operations are subject to numerous
laws, regulations, rules and specifications of the PRC relating to various
aspects. We are in compliance in all material respects with such laws,
regulations, rules, specifications and have obtained all material permits,
approvals and registrations relating to human health and safety, the
environment, taxation, foreign exchange administration, financial and auditing,
and labor and employments. We make capital expenditures from time to time to
stay in compliance with applicable laws and regulations. Below we set forth a
summary of the most significant PRC regulations or requirements that may affect
our business activities operated in the PRC or our shareholders’ right to
receive dividends and other distributions of profits from Beijing JianXin, a
wholly foreign owned enterprise under the PRC laws.




Business
license




Any company that conducts business in
the PRC must have a business license that covers a particular type of work. The
business license of Beijing JianXin covers its present business of distributing
industrial oil and gas equipment and providing related technical and engineering
services, developing and marketing optimization software for the polymerization
process and providing clean technology solutions for the delayed coking
industry. Prior to expanding Beijing JianXin’s business beyond that of its
business license, we are required to apply and receive approval from the PRC
government.




Annual
Inspection




In accordance with relevant PRC laws,
all types of enterprises incorporated under the PRC laws are required to conduct
annual inspections with the State Administration for Industry and Commerce of
PRC or its local branches. In addition, foreign-invested enterprises are also
subject to annual inspections conducted by PRC government authorities. In order
to reduce enterprises’ burden of submitting inspection documentation to
different government authorities, the Measures on Implementing Joint
Annual Inspection issued by the PRC Ministry of Commerce together with
other six ministries in 1998 stipulated that foreign-invested enterprises shall
participate in a joint annual inspection jointly conducted by all relevant PRC
government authorities. Beijing JianXin, as a foreign-invested enterprise, has
participated and passed all such annual inspections since its establishment on
May 6, 2008.




Employment
laws




We are subject to laws and regulations
governing our relationship with our employees, including: wage and hour
requirements, working and safety conditions, citizenship requirements, work
permits and travel restrictions. These include local labor laws and regulations,
which may require substantial resources for compliance.


14




China’s National Labor Law,
which became effective on January 1, 1995, and China’s National Labor Contract
Law, which became effective on January 1, 2008, permit workers in both
state and private enterprises in China to bargain collectively. The National Labor Law and the
National Labor Contract
Law provide for collective contracts to be developed through
collaboration between the labor union (or worker representatives in the absence
of a union) and management that specify such matters as working conditions, wage
scales, and hours of work. The laws also permit workers and employers in all
types of enterprises to sign individual contracts, which are to be drawn up in
accordance with the collective contract.




Foreign
Investment in PRC Operating Companies




The Foreign Investment Industrial
Catalogue jointly issued by the Ministry of Commerce, or the MOFCOM, and
the National Development and Reform Commission, or the NDRC, in 2007 classified
various industries/businesses into three different categories: (i) encouraged
for foreign investment; (ii) restricted to foreign investment; and (iii)
prohibited from foreign investment. For any industry/business not covered by any
of these three categories, they will be deemed industries/businesses permitted
to have foreign investment. Except for those expressly provided restrictions,
encouraged and permitted industries/businesses are usually 100% open to foreign
investment and ownership. With regard to those industries/businesses restricted
to or prohibited from foreign investment, there is always a limitation on
foreign investment and ownership. Beijing JianXin’s business does not fall under
the industry categories that are restricted to, or prohibited from foreign
investment and is not subject to limitation on foreign investment and
ownership.




Regulation
of Foreign Currency Exchange




Foreign currency exchange in the PRC is
governed by a series of regulations, including the Foreign Currency Administrative
Rules (1996), as amended, and the Administrative Regulations Regarding
Settlement, Sale and Payment of Foreign Exchange (1996), as amended.
Under these regulations, the Renminbi is freely convertible for trade and
service-related foreign exchange transactions, but not for direct investment,
loans or investments in securities outside the PRC without the prior approval of
the State Administration of Foreign Exchange, or SAFE. Pursuant to the Administrative Regulations Regarding
Settlement, Sale and Payment of Foreign Exchange (1996), Foreign Invested
Enterprises, or FIEs, may purchase foreign exchange without the approval of the
SAFE for trade and service-related foreign exchange transactions by providing
commercial documents evidencing these transactions. They may also retain foreign
exchange, subject to a cap approved by SAFE, to satisfy foreign exchange
liabilities or to pay dividends. However, the relevant Chinese government
authorities may limit or eliminate the ability of FIEs to purchase and retain
foreign currencies in the future. In addition, foreign exchange transactions for
direct investment, loan and investment in securities outside the PRC are still
subject to limitations and require approvals from the SAFE.




Regulation
of FIEs’ Dividend Distribution




The principal laws and regulations in
the PRC governing distribution of dividends by FIEs include:




(i)
            The
      Sino-foreign Equity Joint Venture Law (1979), as amended, and the
      Regulations for the Implementation of the Sino-foreign Equity Joint
      Venture Law (1983), as amended;




(ii)
            The
      Sino-foreign Cooperative Enterprise Law (1988), as amended, and the
      Detailed Rules for the Implementation of the Sino-foreign Cooperative
      Enterprise Law (1995), as amended;




(iii)
            The
      Foreign Investment Enterprise Law (1986), as amended, and the Regulations
      of Implementation of the Foreign Investment Enterprise Law (1990), as
      amended.




Under these regulations, FIEs in the
PRC may pay dividends only out of their accumulated profits, if any, determined
in accordance with Chinese accounting standards and regulations. In addition,
foreign-invested enterprises in the PRC are required to set aside at least 10%
of their respective accumulated profits each year, if any, to fund certain
reserve funds unless such reserve funds have reached 50% of their respective
registered capital. These reserves are not distributable as cash dividends. The
board of directors of a FIE has the discretion to allocate a portion of its
after-tax profits to staff welfare and bonus funds, which may not be distributed
to equity owners except in the event of liquidation.




15




Regulation
of a Foreign Currency’s Conversion into RMB and Investment by FIEs




On August 29, 2008, the SAFE issued a
Notice of the General Affairs Department of the State Administration of Foreign
Exchange on the Relevant Operating Issues concerning the Improvement of the
Administration of Payment and Settlement of Foreign Currency Capital of
Foreign-Invested Enterprises or Notice 142, to further regulate the foreign
exchange of FIEs. According to the Notice 142, FIEs shall obtain verification
report from a local accounting firm before converting its registered capital of
foreign currency into Renminbi, and the converted Renminbi shall be used for the
business within its permitted business scope. The Notice 142 explicitly
prohibits FIEs from using RMB converted from foreign capital to make equity
investments in the PRC, unless the domestic equity investment is within the
approved business scope of the FIE and has been approved by SAFE in
advance.




Regulation
of Foreign Exchange in Certain Onshore and Offshore Transactions




In October 2005, the SAFE issued the
Notice on Issues Relating to the Administration of Foreign Exchange in
Fund-raising and Return Investment Activities of Domestic Residents Conducted
via Offshore Special Purpose Companies, or SAFE Notice 75, which became
effective as of November 1, 2005, and was further supplemented by two
implementation notices issued by the SAFE on November 24, 2005 and May 29, 2007,
respectively. SAFE Notice 75 states that PRC residents, whether natural or legal
persons, must register with the relevant local SAFE branch prior to establishing
or taking control of an offshore entity established for the purpose of overseas
equity financing involving onshore assets or equity interests held by them. The
term “PRC legal person residents” as used in SAFE Notice 75 refers to those
entities with legal person status or other economic organizations established
within the territory of the PRC. The term “PRC natural person residents” as used
in SAFE Notice 75 includes all PRC citizens and all other natural persons,
including foreigners, who habitually reside in the PRC for economic benefit. The
SAFE implementation notice of November 24, 2005 further clarifies that the term
“PRC natural person residents” as used under SAFE Notice 75 refers to those “PRC
natural person residents” defined under the relevant PRC tax laws and those
natural persons who hold any interests in domestic entities that are classified
as “domestic-funding” interests.




PRC residents are required to complete
amended registrations with the local SAFE branch upon: (i) injection of equity
interests or assets of an onshore enterprise to the offshore entity, or (ii)
subsequent overseas equity financing by such offshore entity. PRC residents are
also required to complete amended registrations or filing with the local SAFE
branch within 30 days of any material change in the shareholding or capital of
the offshore entity, such as changes in share capital, share transfers and
long-term equity or debt investments or, providing security, and these changes
do not relate to return investment activities. PRC residents who have already
organized or gained control of offshore entities that have made onshore
investments in the PRC before SAFE Notice 75 was promulgated must register their
shareholdings in the offshore entities with the local SAFE branch on or before
March 31, 2006.




Under SAFE Notice 75, PRC residents are
further required to repatriate into the PRC all of their dividends, profits or
capital gains obtained from their shareholdings in the offshore entity within
180 days of their receipt of such dividends, profits or capital gains. The
registration and filing procedures under SAFE Notice 75 are prerequisites for
other approval and registration procedures necessary for capital inflow from the
offshore entity, such as inbound investments or shareholders loans, or capital
outflow to the offshore entity, such as the payment of profits or dividends,
liquidating distributions, equity sale proceeds, or the return of funds upon a
capital reduction.




Government
Regulations Relating to Taxation




On March 16, 2007, the National Peoples
Congress or the NPC, approved and promulgated the PRC Enterprise Income Tax
Law, which we refer to as the New EIT Law. The New EIT Law took effect on
January 1, 2008. Under the New EIT Law, FIEs and domestic companies are subject
to a uniform tax rate of 25%. The New EIT Law provides a five-year transition
period starting from its effective date for those enterprises which were
established before the promulgation date of the New EIT Law and which were
entitled to a preferential lower tax rate under the then-effective tax laws or
regulations.




On December 26, 2007, the State Council
issued a Notice on
Implementing Transitional Measures for Enterprise Income Tax, or the
Notice, providing that the enterprises that have been approved to enjoy a low
tax rate prior to the promulgation of the New EIT Law will be eligible for a
five-year transition period since January 1, 2008, during which time the tax
rate will be increased step by step to the 25% unified tax rate set out in the
New EIT Law. From January 1, 2008, for the enterprises whose applicable tax rate
was 15% before the promulgation of the New EIT Law, the tax rate will be
increased to 18% for year 2008, 20% for year 2009, 22% for year 2010, 24% for
year 2011, 25% for year 2012. For the enterprises whose applicable tax rate was
24%, the tax rate will be changed to 25% from January 1, 2008.


16




The New EIT Law provides that an income
tax rate of 20% may be applicable to dividends payable to non-PRC investors that
are “non-resident enterprises.” Non-resident enterprises refer to enterprises
which do not have an establishment or place of business in the PRC, or which
have such establishment or place of business in the PRC but the relevant income
is not effectively connected with the establishment or place of business, to the
extent such dividends are derived from sources within the PRC. The income tax
for non-resident enterprises shall be subject to withholding at the income
source, with the payor acting as the obligatory withholder under the New EIT
Law, and therefore such income taxes generally called withholding tax in
practice. The State Council of the PRC has reduced the withholding tax rate from
20% to 10% through the Implementation Rules of the New EIT Law. It is currently
unclear in what circumstances a source will be considered as located within the
PRC. We are a U.S. holding company and substantially all of our income is
derived from dividends we receive from our subsidiaries located in the PRC.
Thus, if we are considered as a “non-resident enterprise” under the New EIT Law
and the dividends paid to us by our subsidiary in the PRC are considered income
sourced within the PRC, such dividends may be subject to a 10% withholding
tax.




Such income tax may be exempted or
reduced by the State Council of the PRC or pursuant to a tax treaty between the
PRC and the jurisdictions in which our non-PRC shareholders reside. For example,
the 10% withholding tax is reduced to 5% pursuant to the Double Tax Avoidance Agreement
Between Hong Kong and Mainland China if the beneficial owner in Hong Kong
owns more than 25% of the registered capital in a company in the
PRC.




The new tax law provides only a
framework of the enterprise tax provisions, leaving many details on the
definitions of numerous terms as well as the interpretation and specific
applications of various provisions unclear and unspecified. Any increase in the
combined company’s tax rate in the future could have a material adverse effect
on its financial conditions and results of operations.




Regulations
of Overseas Investments and Listings




On August 8, 2006, six PRC regulatory
agencies, including the MOFCOM, the China Securities Regulatory Commission or
the CSRC, the State Asset Supervision and Administration Commission or the
SASAC, the State Administration of Taxation, or the SAT, the State
Administration for Industry and Commerce or the SAIC and SAFE, amended and
released the New M&A Rule, which took effect as of September 8, 2006. This
regulation, among other things, includes provisions that purport to require that
an offshore special purpose vehicle (“SPV”) formed for purposes of overseas
listing of equity interest in PRC companies and controlled directly or
indirectly by PRC companies or individuals obtain the approval of the CSRC prior
to the listing and trading of such SPV’s securities on an overseas stock
exchange.




On September 21, 2006, the CSRC
published on its official website procedures regarding its approval of overseas
listings by SPVs. The CSRC approval procedures require the filing of a number of
documents with the CSRC. The application of the New M&A Rule with respect to
overseas listings of SPVs remains unclear with no consensus currently existing
among the leading PRC law firms regarding the scope of the applicability of the
CSRC approval requirement.




Regulation
of the Software Industry




Software
Copyright




The China State Council promulgated the
Regulations on the Protection
of Computer Software, or the Software Protection Regulations, on December
20, 2001, which became effective on January 1, 2002. The Software Protection
Regulations were promulgated, among other things, to protect the copyright of
computer software in China. According to the Software Protection Regulations,
computer software that is independently developed and exists in a physical form
or is attached to physical goods will be protected. However, such protection
does not apply to any ideas, mathematical concepts, processing and operation
methods used in the development of software solutions.




Under the Software Protection
Regulations, PRC citizens, legal persons and organizations shall enjoy copyright
protection over computer software that they have developed, regardless of
whether the software has been published. Foreigners or any person without a
nationality shall enjoy copyright protection over computer software that they
have developed, as long as such computer software was first distributed in
China. Software of foreigners or any person without a nationality shall enjoy
copyright protection in China under these regulations in accordance with a
bilateral agreement signed between China and the country to which the developer
is a citizen of or in which the developer habitually resides, or in accordance
with an international treaty to which China is a party.


17




Under the Software Protection
Regulations, owners of software copyright protection shall enjoy the rights of
publication, authorship, modification, duplication, issuance, lease,
transmission on the information network, translation, licensing and transfer.
Software copyright protection takes effect on the day of completion of the
software’s development.




The protection period for software
developed by legal persons and other organizations is 50 years and ends on the
thirty-first day of December of the fiftieth year from the date the software
solution was first published. However, the Software Protection Regulations will
not protect the software if it is published within 50 years of the completion of
its development. A contract of licensing shall be made to license others to
exploit the software copyright, and if the licensing of exploitation of software
copyright is exclusive, a written contract shall be made. A written contract
also shall be made for the transfer of any software copyright.




Civil remedies available under the
Software Protection Regulations against infringements of copyright include
cessation of the infringement, elimination of the effects, apology and
compensation for losses. The administrative department of copyright shall order
the infringer of software copyright to stop all infringing acts, confiscate
illegal gains, confiscate and destroy infringing copies, and may impose a fine
on the offender under certain circumstances. Disputes regarding infringements of
software copyright may be settled through mediation. In addition, the parties
involved in the disputes may apply for arbitration in accordance with any
arbitration provisions set forth in the copyright contract or arbitration
agreement otherwise entered into between or among the parties. If the parties
neither have an arbitration provision in the copyright contract, nor an
arbitration agreement, they may resolve their dispute through the PRC courts
directly.




Software
Copyright Registration




On February 20, 2002, the State
Copyright Administration of the PRC promulgated and enforced the Measures Concerning Registration of
Computer Software Copyright Procedures, or the Registration Procedures,
to implement the Software Protection Regulations and to promote the development
of China’s software industry. The Registration Procedures apply to the
registration of software copyrights and software copyright exclusive licensing
contracts and assignment contracts. The registrant of a software copyright will
either be the copyright owner, or another person (whether a natural person,
legal person or an organization) in whom the software copyright becomes vested
through succession, assignment or inheritance.




Pursuant to the Registration
Procedures, the software to be registered must (i) have been independently
developed or (ii) significantly improve in its function or performance after
modification from the original software with the permission of the original
copyright owner. If the software being registered is developed by more than one
person, the copyright owners may nominate one person to handle the copyright
registration process on behalf of the other copyright owners. If the copyright
owners fail to reach an agreement with respect to the registration, any of the
copyright owners may apply for registration but the names of the other copyright
owners must be recorded on the application.




The registrant of a software copyright
and the parties to a software copyright assignment contract or exclusive
licensing contract may apply to the Copyright Protection Center of the PRC for
registration of such software copyright and contracts. To register a software
copyright, the following documents shall be submitted: (i) a completed software
copyright registration application form in accordance with relevant
requirements; (ii) identification materials of software; and (iii) relevant
documentation demonstrating ownership. To register a software copyright
assignment contract or exclusive licensing contract, the following materials
shall be submitted: (i) a completed contract registration form in accordance
with relevant requirements; (ii) a copy of the contract; and (iii) the
applicant’s identification documents. The Copyright Protection Center of the PRC
will complete its examination of an accepted application within 60 days of the
date of acceptance. If an application complies with the requirements of the
Software Protection Regulations and the Registration Procedures, a registration
will be granted, a corresponding registration certificate will be issued and the
registration will be publicly announced.


18




Software
Products Administration




On October 27, 2000, the MIIT issued
and enforced the Measures
Concerning Software Products Administration, to regulate and administer
software products and promote the development of the software industry in China.
Pursuant to the Measures
Concerning Software Products Administration, all software products
operated or sold in China had to be duly registered and recorded with the
relevant authorities, and no entity or individual is allowed to sell or
distribute any unregistered and unrecorded software products.




To produce software products in China,
a software producer was required to meet the following requirements: (i) it
possessed the status of an enterprise legal person, and its scope of operations
included the computer software business (including technology development of
software or production of software products); (ii) it had a fixed production
site; (iii) it possessed necessary conditions and technologies for producing
software products; and (iv) it possessed quality control measures and
capabilities for the production of software products. Software developers or
producers were allowed to sell their registered and recorded software products
independently or through agents, or by way of licensing. Software products
developed in China had to be registered with the local provincial governmental
authorities in charge of information industry and then filed with the taxation
authority at the same level and MIIT. Imported software products (software
developed overseas and sold or distributed into China), had to be registered
with the MIIT. Upon registration, the software products had to be granted
registration certificates. Each registration certificate was valid for five
years from the issuance date and could be renewed upon expiry. The MIIT and
other relevant departments carried out supervision and inspection over the
development, production, operation and import/export activities of software
products in China.




On March 1, 2009, the MIIT promulgated
the amended and restated Measures Concerning Software
Products Administration, or the New Measures, which became effective on
April 10, 2009. Under the New Measures, software products operated or sold in
China are not required to be registered or recorded by relevant authorities, and
software products developed in China (including those developed in China on the
basis of imported software) can enjoy certain favorable policies when they have
been registered and recorded. The New Measures also eliminated the October 2000
requirements set forth above.




Policies
to Encourage the Development of Software and Integrated Circuit
Industries




On June 24, 2000, the State Council
issuedCertain Policies to
Encourage the Development of Software and Integrated Circuit Industries,
or the Policies, to encourage the development of the software and integrated
circuit industries in China and to enhance the competitiveness of the PRC
information technology industry in the international market. The Policies
encourage the development of the software and integrated circuit industries in
China through various methods, including:




(i)
            Encouraging
      venture capital investment in the software industry and providing or
      assisting software enterprises to raise capital
  overseas;




(ii)
            Providing
      tax incentives, including an immediate tax rebate for taxpayers who sell
      self-developed software products, before 2010, of the amount of the
      statutory value-added tax that exceeds 3% and a number of exemptions and
      reduced enterprise income tax
rates;




(iii)
            Providing
      government support, such as government funding in the development of
      software technology;




(iv)
            Providing
      preferential treatment, such as credit facilities with low interest rates
      to enterprises that export software
products;




(v)
            Taking
      various strategies to ensure that the software industry has sufficient
      expertise; and




(vi)
            Implementing
      measures to enhance intellectual property protection in
    China.




To qualify for preferential treatment,
an enterprise must be recognized as a software enterprise by governmental
authorities. A software enterprise is subject to annual inspection, failure of
which in a given year shall cause the enterprise not to be able to enjoy the
relevant benefits.


19




Item
      1A.
            Risk
      Factors




In
addition to the other information in this Form 10-K, readers should carefully
consider the following important factors. These factors, among others, in some
cases have affected, and in the future could affect, our financial condition and
results of operations and could cause our future results to differ materially
from those expressed or implied in any forward-looking statements that appear in
this on Form 10-K or that we have made or will make elsewhere.




Risks
Related to Our Business




Key
employees are essential to growing our business.




Jianzhong Zuo, Jintai Zhao, Zipeng
Zhang and Junheng Su are essential to our ability to continue to grow our
business. These individuals have established key relationships with customers
and suppliers within the industries in which we operate. If one or more of these
key employees were to leave us, our relationships with our customers and
suppliers may become strained, and our growth strategy might be hindered, which
could limit our ability to increase revenue.




In
addition, we face competition for attracting skilled personnel. If we fail to
attract and retain qualified personnel to meet current and future needs, this
could slow our ability to grow our business, which could result in a decrease in
market share.




We
may need additional capital and we may not be able to obtain it at acceptable
terms, or at all, which could adversely affect our liquidity and financial
position.




We may need additional cash resources
due to changed business conditions or other future developments. If these
sources are insufficient to satisfy our cash requirements, we may seek to sell
additional equity or debt securities or obtain a credit facility. The incurrence
of indebtedness would result in increased debt service obligations and could
result in operating and financing covenants that would restrict our operations
and liquidity.




Our
ability to obtain additional capital on acceptable terms is subject to a variety
of uncertainties, including, but not limited to the following, and therefore may
never occur:




•
            investors’
      perception of, and demand for, securities of similar oil and gas equipment
      and services/clean technology companies in
  China;




•
            conditions
      of the U.S. and other capital markets in which we may seek to raise
      funds;




•
            our
      future results of operations, financial condition and cash
      flow;




•
            PRC
      governmental regulation of foreign investment in oil and gas equipment and
      services/clean technology companies in
China;




•
            economic,
      political and other conditions in China;
and




•
            PRC
      governmental policies relating to foreign currency
    borrowings.




We
rely on computer software and hardware systems in managing our operations, the
failure of which could adversely affect our business, financial condition and
results of operations.




We are dependent upon our computer
software and hardware systems in supporting our network and managing and
monitoring programs on the network. In addition, we rely on our computer
hardware for the storage, delivery and transmission of the data on our network.
Any system failure which interrupts the input, retrieval and transmission of
data or increases the service time could disrupt our normal operation. Any
failure in our computer software or hardware systems could decrease our revenues
and harm our relationships with our customers, which in turn could have a
material adverse effect on our business, financial condition and results of
operations.


20




Our
dependence on a limited number of suppliers could adversely impact our
distribution capabilities or increase our costs, which could harm our reputation
or materially and adversely affect our business, results of operations and
financial condition.




We import high-quality petroleum and
petrochemical valves and similar equipment from a limited number of third-party
suppliers, including Cameron, DeltaValve and Poyam Valves, and distribute them
to our domestic clients who are large petroleum and petrochemical companies
located and operating in China. The failure of a supplier to supply valves and
other equipment satisfying our quality, quantity and cost requirements in a
timely and efficient manner could impair our ability to distribute these
products, increase our costs, and have an adverse effect on our ability to
maintain our client network of domestic buyers of this machinery. The
third-party suppliers from whom we import petroleum and petrochemical valves and
similar equipment have not committed, contractually or otherwise, to distribute
their products through us on an exclusive or a non-exclusive basis. If we fail
to maintain our relationships with these suppliers or fail to develop new
relationships with other suppliers, we may only be able to distribute these
products at a higher cost or after lengthy delays, or may not be able to
distribute these products at all. If our suppliers identify alternative sales
channels, they may choose to sell to other buyers or raise their prices. As a
result, we may be compelled to pay higher prices to secure our product supply,
which could adversely affect our business, results of operations and financial
condition.




Although
our continuing relationships with DeltaValve and other manufacturers are
important components of our future growth plan, there can be no assurance that
we will continue to be a distributor for such manufacturers, on an exclusive or
non-exclusive basis, or that we will in the future successfully consummate the
expansion and investment opportunities that we seek.




In the past, we have had a strong
working relationship with DeltaValve and other manufacturers and have acted as
the sole distributor of DeltaValve products in China. Although we believe that
our relationship with DeltaValve and other manufacturers will continue, there is
no assurance that we will retain our position as sole distributor of certain
DeltaValve products, or as a distributor of other manufacturers’ products.
DeltaValve and other manufacturers may determine to provide licenses to
distribute their products to our competitors and/or may not renew our licenses
with them on terms favorable to us or at all. Furthermore, although we
continually explore many potential expansion and investment opportunities in our
industry with third parties such as DeltaValve, there can be no assurance that
the opportunities that we pursue will ultimately be consummated, or
appropriately licensed and approved. In such circumstances, we may be required
to pursue other opportunities at lower margins, which could adversely affect our
business, results of operations and financial condition.




In
the past several years we have derived a significant portion of our revenues
from a small group of customers. If we are to remain dependent upon only a few
customers, such dependency could negatively impact our business, operating
results and financial condition.




Previously, our customer base has been
highly concentrated. For the years ended March 31, 2010 and 2009, our two
largest customers accounted for 91% and 47% of our total sales, respectively,
and the single largest customer accounted for 51% and 30% of our total sales,
respectively. As our customer base may change from year-to-year, during such
years that the customer base is highly concentrated, the loss of, or reduction
of our sales to, any of such major customers could have a material
adverse effect on our business, operating results and financial
condition.




Many
of the contracts that we enter into with purchasers of our products contain
liquidated damages provisions for up to 10% of the contract value which, if
enforced, would have a negative effect on our business, financial condition
and results of operations.
 
 It is customary in our industry for
purchase agreements to contain liquidated damages provisions and many of the
purchase agreements that we enter into to sell our products contain provisions
requiring us to pay a penalty for delays in delivery of our products in the
amount of 1% of the contract value for each week delivery is delayed, up to a
maximum penalty of 10% of the contract value.   We have never had
an instance where a purchaser of our products has enforced this or similar
liquidated damages provisions for delivery delays, but we can make no assurance
that we will not have such provisions enforced against us in the
future.  Any enforcement of liquidated damages provisions by our
customers would have a negative effect on our business, financial condition
and results of operations.




Our
chairman and chief executive officer, Jianzhong Zuo, owns a substantial portion
of our outstanding common stock, which will enable him to influence many
significant corporate actions and in certain circumstances may prevent a change
in control that would otherwise be beneficial to our stockholders.




As of the date hereof, our chairman and
chief executive officer, Jianzhong Zuo, controls approximately 59.7% of our
outstanding shares of common stock that are entitled to vote on all corporate
actions. These stockholders, acting together, could have a substantial impact on
matters requiring the vote of the stockholders, including the election of our
directors and most of our corporate actions. This control could delay, defer or
prevent others from initiating a potential merger, takeover or other change in
our control, even if these actions would benefit our stockholders and us. This
control could adversely affect the voting and other rights of our other
stockholders and could depress the market price of our common
stock.


21




We
have limited insurance coverage.




The insurance industry in China is
still at an early stage of development. Insurance companies in China offer
limited insurance products. We have determined that the risks of disruption or
liability from our business, the loss or damage to our property, including our
facilities, equipment and office furniture, the cost of insuring for these
risks, and the difficulties associated with acquiring such insurance on
commercially reasonable terms make it impractical for us to have such insurance.
As a result, we do not have any business liability, disruption, litigation or
property insurance coverage for our operations in China except for insurance on
some company owned vehicles. Any uninsured occurrence of loss or damage to
property, or litigation or business disruption may result in the incurrence of
substantial costs and the diversion of resources, which could have an adverse
effect on our operating results.




If
we are unable to establish appropriate internal financial reporting controls and
procedures, it could cause us to fail to meet our reporting obligations, result
in the restatement of our financial statements, harm our operating results,
subject us to regulatory scrutiny and sanction, cause investors to lose
confidence in our reported financial information and have a negative effect on
the market price for shares of our common stock.




Effective internal controls are
necessary for us to provide reliable financial reports and effectively prevent
fraud. We maintain a system of internal control over financial reporting, which
is defined as a process designed by, or under the supervision of, our principal
executive officer and principal financial officer, or persons performing similar
functions, and effected by our Board of Directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.




As a public company, we will have
significant additional requirements for enhanced financial reporting and
internal controls. We will be required to document and test our internal control
procedures in order to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002, which requires annual management assessments of the
effectiveness of our internal controls over financial reporting and a report by
our independent registered public accounting firm addressing these assessments.
The process of designing and implementing effective internal controls is a
continuous effort that requires us to anticipate and react to changes in our
business and the economic and regulatory environments and to expend significant
resources to maintain a system of internal controls that is adequate to satisfy
our reporting obligations as a public company.




We cannot assure you that we will not,
in the future, identify areas requiring improvement in our internal control over
financial reporting. We cannot assure you that the measures we will take to
remediate any areas in need of improvement will be successful or that we will
implement and maintain adequate controls over our financial processes and
reporting in the future as we continue our growth. If we are unable to establish
appropriate internal financial reporting controls and procedures, it could cause
us to fail to meet our reporting obligations, result in the restatement of our
financial statements, harm our operating results, subject us to regulatory
scrutiny and sanction, cause investors to lose confidence in our reported
financial information and have a negative effect on the market price for shares
of our common stock.




Lack
of experience as officers of publicly-traded companies of our management team
may hinder our ability to comply with Sarbanes-Oxley Act.




It may be time consuming, difficult and
costly for us to develop and implement the internal controls and reporting
procedures required by the Sarbanes-Oxley Act. We may need to hire additional
financial reporting, internal controls and other finance staff or consultants in
order to develop and implement appropriate internal controls and reporting
procedures. If we are unable to comply with the Sarbanes-Oxley Act’s internal
controls requirements, we may not be able to obtain the independent auditor
certifications that Sarbanes-Oxley Act requires publicly-traded companies to
obtain.




We
will incur increased costs as a result of being a public company.




As a public company, we will incur
significant legal, accounting and other expenses that we did not incur as a
private company. In addition, the Sarbanes-Oxley Act, as well as new rules
subsequently implemented by the SEC, has required changes in corporate
governance practices of public companies. We expect these new rules and
regulations to increase our legal, accounting and financial compliance costs and
to make certain corporate activities more time-consuming and costly. In
addition, we will incur additional costs associated with our public company
reporting requirements. We are currently evaluating and monitoring developments
with respect to these new rules, and we cannot predict or estimate the amount of
additional costs we may incur or the timing of such costs.


22




Risks
Relating to Regulation of Our Business




Uncertainties
with respect to government regulations applicable to our business could have a
material and adverse effect on us.




There are substantial uncertainties
regarding the interpretation and application of the PRC laws and regulations,
including, but not limited to, the laws and regulations governing our business
and our ownership of equity interest in Beijing JianXin. These laws and
regulations are relatively new and may be subject to change, and their official
interpretation and enforcement may involve substantial uncertainty. The
effectiveness of newly enacted laws, regulations or amendments may be delayed,
resulting in detrimental reliance by foreign investors. New laws and regulations
that affect existing and proposed future businesses may also be applied
retroactively.




The PRC government has broad discretion
in dealing with violations of laws and regulations, including levying fines,
revoking business and other licenses and requiring actions necessary for
compliance. In particular, licenses and permits issued or granted to Beijing
JianXin by relevant governmental bodies may be revoked at a later time by higher
regulatory bodies. We cannot predict the effect of the interpretation of
existing or new PRC laws or regulations on our businesses. We cannot assure you
that our current ownership and operating structure would not be found in
violation of any current or future PRC laws or regulations. As a result, we may
be subject to sanctions, including fines, and could be required to restructure
our operations or cease to provide certain services. In addition, any litigation
in China may be protracted and result in substantial costs and diversion of
resources and management attention. Any of these or similar actions could
significantly disrupt our business operations or restrict us from conducting a
substantial portion of our business operations, which could materially and
adversely affect our business, financial condition and results of
operations.




Our
PRC operating subsidiary will be subject to restrictions on dividend
payments.




We may rely on dividends and other
distributions from the Beijing JianXin, our PRC subsidiary, to provide us with
cash flow and to meet our other obligations. Current regulations in the PRC
would permit Beijing JianXin to pay dividends to us only out of its accumulated
distributable profits, if any, determined in accordance with Chinese accounting
standards and regulations. In addition, Beijing JianXin will be required to set
aside at least 10% (up to an aggregate amount equal to half of its registered
capital) of its accumulated profits each year. Such cash reserve may not be
distributed as cash dividends. In addition, if the Beijing JianXin incurs debt
on its own behalf in the future, the instruments governing the debt may restrict
its ability to pay dividends or make other payments to us.




PRC
regulations on loans and direct investments by overseas holding companies in PRC
entities may delay or prevent us to make overseas loans or additional capital
contributions to Beijing JianXin.




Under the PRC laws, foreign investors
may make loans to their PRC subsidiaries or foreign investors may make
additional capital contributions to their PRC subsidiaries. Any loans to such
PRC subsidiaries are subject to the PRC regulations and foreign exchange loan
registrations.  Loans by foreign investors to their PRC subsidiaries
to finance their activities cannot exceed statutory limits and must be
registered with the State Administration of Foreign Exchange, or SAFE, or its
local branch. Foreign investors may also decide to finance their PRC
subsidiaries by means of additional capital contributions. These capital
contributions must be examined and approved by the Ministry of Commerce, or
MOFCOM, or its local branch in advance.




Under
the PRC Enterprise Income Tax
Law, we may be classified as a “resident enterprise” of China, and such
classification would likely result in unfavorable tax consequences to us and our
non-PRC stockholders.




On March 16, 2007, the National
People’s Congress or the NPC, approved and promulgated the PRC Enterprise Income Tax
Law, which we refer to as the New EIT Law. The New EIT Law took effect on
January 1, 2008. Under the New EIT Law, Foreign Investment Enterprises (“FIEs”)
and domestic companies are subject to a uniform tax rate of 25%. The New EIT Law
provides a five-year transition period starting from its effective date for
those enterprises which were established before the promulgation date of the New
EIT Law and which were entitled to a preferential lower tax rate under the
then-effective tax laws or regulations.


23




On December 26, 2007, the State Council
issued a Notice on
Implementing Transitional Measures for Enterprise Income Tax, or the
Notice, providing that the enterprises that have been approved to enjoy a low
tax rate prior to the promulgation of the New EIT Law will be eligible for a
five-year transition period since January 1, 2008, during which time the tax
rate will be increased step by step to the 25% unified tax rate set out in the
New EIT Law. From January 1, 2008, for the enterprises whose applicable tax rate
was 15% before the promulgation of the New EIT Law, the tax rate will be
increased to 18% for year 2008, 20% for year 2009, 22% for year 2010, 24% for
year 2011, 25% for year 2012. For the enterprises whose applicable tax rate was
24%, the tax rate will be changed to 25% from January 1, 2008.




Under the New EIT Law, an enterprise
established outside of China with “de facto management bodies” within China is
considered a “resident enterprise,” meaning that it can be treated in a manner
similar to a Chinese enterprise for enterprise income tax purposes. The
implementing rules of the New EIT Law define de facto management as “substantial
and overall management and control over the production and operations,
personnel, accounting, and properties” of the enterprise. Because the New EIT
Law and its implementing rules are new, no official interpretation or
application of this new “resident enterprise” classification is available.
Therefore, it is unclear how tax authorities will determine tax residency based
on the facts of each case.




If the PRC tax authorities determine
that we are “resident enterprises” for PRC enterprise income tax purposes, a
number of unfavorable PRC tax consequences could follow. First, we may be
subject to the enterprise income tax at a rate of 25% on our worldwide taxable
income as well as PRC enterprise income tax reporting obligations. In our case,
this would mean that income such as interest on offering proceeds and non-China
source income would be subject to PRC enterprise income tax at a rate of 25%.
Second, although under the New EIT Law and its implementing rules dividends paid
to us from our PRC subsidiaries would qualify as “tax-exempt income,” we cannot
guarantee that such dividends will not be subject to a 10% withholding tax, as
the PRC foreign exchange control authorities, which enforce the withholding tax,
have not yet issued guidance with respect to the processing of outbound
remittances to entities that are treated as resident enterprises for PRC
enterprise income tax purposes. Finally, it is possible that “resident
enterprise” classification could result in a situation in which a 10%
withholding tax is imposed on dividends we pay to our non-PRC stockholders and
with respect to gains derived by our non-PRC stockholders from transferring our
shares.




Dividends
we received from Beijing JianXin may be subject to PRC withholding
tax.




The New EIT Law provides that an income
tax rate of 20% may be applicable to dividends payable to non-PRC investors that
are “non-resident enterprises” and that do not have an establishment or place of
business in the PRC, or which have such establishment or place of business in
the PRC but the relevant income is not effectively connected with the
establishment or place of business, to the extent such dividends are derived
from sources within the PRC. The income tax for non-resident enterprises shall
be subject to withholding at the income source, with the payer acting as the
obligatory withholder under the New EIT Law, and therefore such income taxes are
generally called withholding tax in practice. The State Council of the PRC has
reduced the withholding tax rate from 20% to 10% through the Implementation Rules of the New EIT
Law. It is currently unclear in what circumstances a source will be
considered as located within the PRC. We are an offshore holding company. Thus,
if we are considered as a “non-resident enterprise” under the New EIT Law and
the dividends paid to us by our subsidiary in the PRC are considered income
sourced within the PRC, such dividends may be subject to a 10% withholding
tax.




The new tax law provides only a
framework of the enterprise tax provisions, leaving many details on the
definitions of numerous terms as well as the interpretation and specific
applications of various provisions unclear and unspecified. Any increase in our
combined company’s tax rate in the future could have a material adverse effect
on our financial conditions and results of operations.


24




Beijing
JianXin is obligated to withhold and pay PRC individual income tax on behalf of
our employees who are subject to PRC individual income tax. If we fail to
withhold or pay such individual income tax in accordance with applicable PRC
regulations, we may be subject to certain sanctions and other penalties and may
become subject to liability under PRC laws.




Under PRC laws, Beijing JianXin, our
PRC subsidiary, is obligated to withhold and pay individual income tax on behalf
of our employees who are subject to PRC individual income tax. If the PRC
Subsidiary fails to withhold and/or pay such individual income tax in accordance
with PRC laws, it may be subject to certain sanctions and other penalties and
may become subject to liability under PRC laws.




In addition, the State Administration
of Taxation has issued several circulars concerning employee stock options.
Under these circulars, our employees working in the PRC (which could include
both PRC employees and expatriate employees subject to PRC individual income
tax) who exercise stock options will be subject to PRC individual income tax.
Our PRC subsidiary has obligations to file documents related to employee stock
options with relevant tax authorities and withhold and pay individual income
taxes for those employees who exercise their stock options. While tax
authorities may advise us that our policy is compliant, they may change their
policy, and we could be subject to sanctions.




Regulation
of foreign currency’s conversion into RMB and investment by FIEs may adversely
affect our PRC Subsidiary’s direct investment in China




On August 29, 2008, the SAFE issued a
Notice of the General Affairs Department of the State Administration of Foreign
Exchange on the Relevant Operating Issues concerning the Improvement of the
Administration of Payment and Settlement of Foreign Currency Capital of
Foreign-Invested Enterprises or Notice 142, to further regulate the foreign
exchange of FIEs. According to Notice 142, FIEs shall obtain verification report
from a local accounting firm before converting its registered capital of foreign
currency into Renminbi, and the converted Renminbi shall be used for the
business within its permitted business scope. Notice 142 explicitly prohibits
FIEs from using RMB converted from foreign capital to make equity investments in
the PRC, unless the domestic equity investment is within the approved business
scope of the FIE and has been approved by SAFE in advance.




Regulations
of Overseas Investments and Listings may increase the administrative burden we
face and create regulatory uncertainties.




On August 8, 2006, six PRC regulatory
agencies, including MOFCOM, the CSRC, the SASAC, the SAT, the SAIC and SAFE,
jointly amended and released the New M&A Rule, which took effect as of
September 8, 2006. This regulation, among other things, includes provisions that
purport to require that an offshore SPV formed for purposes of overseas listing
of equity interest in PRC companies and controlled directly or indirectly by PRC
companies or individuals obtain the approval of the CSRC prior to the listing
and trading of such SPV’s securities on an overseas stock exchange.




On September 21, 2006, the CSRC
published on its official website procedures regarding its approval of overseas
listings by SPVs. The CSRC approval procedures require the filing of a number of
documents with the CSRC and it would take several months to complete the
approval process.




The application of the New M&A Rule
with respect to overseas listings of SPVs remains unclear with no consensus
currently existing among the leading PRC law firms regarding the scope of the
applicability of the CSRC approval requirement.




It is not clear whether the provisions
in the new regulation regarding the offshore listing and trading of the
securities of a SPV applies to an offshore company such as us which owns equity
interest in the PRC Operating Entity. We believe that the New M&A Rule and
the CSRC approval are not required in the context of the Share Exchange under
our transaction because (i) such Share Exchange is a purely foreign related
transaction governed by foreign laws, not subject to the jurisdiction of PRC
laws and regulations; (ii) we are not a SPV formed or controlled by PRC
companies or PRC individuals; (iii) the PRC Operating Entity is a PRC wholly
foreign owned enterprise, which is not owned or controlled by PRC individuals or
entities; (iv) we are owned or substantively controlled by foreigners; and (v)
there is no clear requirement in the New M&A Rule that would require an
application to be submitted to the MOFCOM or the CSRC for the approval of the
listing and trading of our company on the U.S. securities market. However, we
cannot be certain that the relevant PRC government agencies, including the CSRC,
would reach the same conclusion, and we still cannot rule out the possibility
that CSRC may deem that the transactions effected by the Share Exchange
circumvented the New M&A Rule, the PRC Securities Law and other rules and
notices.


25




If the CSRC or another PRC regulatory
agency subsequently determines that the CSRC’s approval is required for the
transaction, we may face sanctions by the CSRC or another PRC regulatory agency.
If this happens, these regulatory agencies may impose fines and penalties on our
operations in the PRC, limit our operating privileges in the PRC, delay or
restrict the repatriation of the proceeds from this Offering into the PRC,
restrict or prohibit payment or remittance of dividends to us or take other
actions that could have a material adverse effect on our business, financial
condition, results of operations, reputation and prospects, as well as the
trading price of our shares. The CSRC or other PRC regulatory agencies may also
take actions requiring us, or making it advisable for us, to delay or cancel the
transaction.




The New M&A Rule, along with
foreign exchange regulations discussed in the above subsection, will be
interpreted or implemented by the relevant government authorities in connection
with our future offshore financings or acquisitions, and we cannot predict how
they will affect our acquisition strategy.




Risks
Associated With Doing Business In China




Our
operations and assets in China are subject to significant political and economic
uncertainties.




Changes in PRC laws and regulations, or
their interpretation, or the imposition of confiscatory taxation, restrictions
on currency conversion, imports and sources of supply, devaluations of currency
or the nationalization or other expropriation of private enterprises could have
a material adverse effect on our business, results of operations and financial
condition. Under its current leadership, the Chinese government has been
pursuing economic reform policies that encourage private economic activity and
greater economic decentralization. There is no assurance, however, that the
Chinese government will continue to pursue these policies, or that it will not
significantly alter these policies from time to time without
notice.




We
derive a substantial portion of ours sales from the PRC.




Substantially all of our sales are
generated from the PRC. We anticipate that sales of our products in the PRC will
continue to represent a substantial proportion of our total sales in the near
future. Any significant decline in the condition of the PRC economy could
adversely affect consumer demand of our products, among other things, which in
turn would have a material adverse effect on our business and financial
condition.




Currency
fluctuations and restrictions on currency exchange may adversely affect our
business, including limiting our ability to convert Chinese Renminbi into
foreign currencies and, if Chinese Renminbi were to decline in value, reducing
our revenue in U.S. dollar terms.




Our reporting currency is the U.S.
dollar and our operations in China use their local currency as their functional
currencies. Substantially all of our revenue and expenses are in Chinese
Renminbi. We are subject to the effects of exchange rate fluctuations with
respect to any of these currencies. For example, the value of the Renminbi
depends to a large extent on Chinese government policies and China’s domestic
and international economic and political developments, as well as supply and
demand in the local market. Since 1994, the official exchange rate for the
conversion of Renminbi to the U.S. dollar had generally been stable and the
Renminbi had appreciated slightly against the U.S. dollar. However, on July 21,
2005, the Chinese government changed its policy of pegging the value of Chinese
Renminbi to the U.S. dollar. Under the new policy, Chinese Renminbi may
fluctuate within a narrow and managed band against a basket of certain foreign
currencies. As a result of this policy change, Chinese Renminbi appreciated
approximately 0.09% against the U.S. dollar in 2009 and 3.35% in 2008. It is
possible that the Chinese government could adopt a more flexible currency
policy, which could result in more significant fluctuation of Chinese Renminbi
against the U.S. dollar. We can offer no assurance that Chinese Renminbi will be
stable against the U.S. dollar or any other foreign currency.


26




The income statements of our operations
are translated into U.S. dollars at the average exchange rates in each
applicable period. To the extent the U.S. dollar strengthens against foreign
currencies, the translation of these foreign currencies denominated transactions
results in reduced revenue, operating expenses and net income for our
international operations. Similarly, to the extent the U.S. dollar weakens
against foreign currencies, the translation of these foreign currency
denominated transactions results in increased revenue, operating expenses and
net income for our international operations. We are also exposed to foreign
exchange rate fluctuations as we convert the financial statements of our foreign
subsidiaries into U.S. dollars in consolidation. If there is a change in foreign
currency exchange rates, the conversion of the foreign subsidiaries’ financial
statements into U.S. dollars will lead to a translation gain or loss which is
recorded as a component of other comprehensive income. In addition, we have
certain assets and liabilities that are denominated in currencies other than the
relevant entity’s functional currency. Changes in the functional currency value
of these assets and liabilities create fluctuations that will lead to a
transaction gain or loss. We have not entered into agreements or purchased
instruments to hedge our exchange rate risks, although we may do so in the
future. The availability and effectiveness of any hedging transaction may be
limited and we may not be able to successfully hedge our exchange rate
risks.




Although Chinese governmental policies
were introduced in 1996 to allow the convertibility of Chinese Renminbi into
foreign currency for current account items, conversion of Chinese Renminbi into
foreign exchange for capital items, such as foreign direct investment, loans or
securities, requires the approval of the State Administration of Foreign
Exchange, or SAFE, which is under the authority of the People’s Bank of China.
These approvals, however, do not guarantee the availability of foreign currency
conversion. We cannot be sure that we will be able to obtain all required
conversion approvals for our operations or that Chinese regulatory authorities
will not impose greater restrictions on the convertibility of Chinese Renminbi
in the future. Because a significant amount of our future revenue may be in the
form of Chinese Renminbi, our inability to obtain the requisite approvals or any
future restrictions on currency exchanges could limit our ability to utilize
revenue generated in Chinese Renminbi to fund our business activities outside of
China, or to repay foreign currency obligations, including our debt obligations,
which would have a material adverse effect on our financial condition and
results of operations.




We
may have limited legal recourse under PRC laws if disputes arise under our
contracts with third parties.




The Chinese government has enacted laws
and regulations dealing with matters such as corporate organization and
governance, foreign investment, commerce, taxation and trade. However, precedent
and experience in implementing, interpreting and enforcing these laws and
regulations is limited, and our ability to enforce commercial claims or to
resolve commercial disputes is unpredictable. If our new business ventures are
unsuccessful, or other adverse circumstances arise from these transactions, we
face the risk that the parties to these ventures may seek ways to terminate the
transactions, or, may hinder or prevent us from accessing important information
regarding the financial and business operations of these acquired companies. The
resolution of these matters may be subject to the exercise of considerable
discretion by agencies of the Chinese government, and forces unrelated to the
legal merits of a particular matter or dispute may influence their
determination. Any rights we may have to specific performance, or to seek an
injunction under PRC law, in either of these cases, are severely limited, and
without a means of recourse by virtue of the Chinese legal system, we may be
unable to prevent these situations from occurring. The occurrence of any such
events could have a material adverse effect on our business, financial condition
and results of operations.




We
must comply with the Foreign Corrupt Practices Act which may make us less
competitive with companies not subject to it.




We are required to comply with the
United States Foreign Corrupt Practices Act, which prohibits U.S. companies from
engaging in bribery or other prohibited payments to foreign officials for the
purpose of obtaining or retaining business. Foreign companies, including some of
our competitors, are not subject to these prohibitions. Corruption, extortion,
bribery, pay-offs, theft and other fraudulent practices occur from time-to-time
in mainland China. If our competitors engage in these practices, they may
receive preferential treatment from personnel of some companies, giving our
competitors an advantage in securing business or from government officials who
might give them priority in obtaining new licenses, which would put us at a
disadvantage. Although we inform our personnel that such practices are illegal,
we can not assure you that our employees or other agents will not engage in such
conduct for which we might be held responsible. If our employees or other agents
are found to have engaged in such practices, we could suffer severe
penalties.




27




Changes
in foreign exchange regulations in the PRC may affect our ability to pay
dividends in foreign currency or conduct other foreign exchange
business.




The Renminbi is not a freely
convertible currency currently, and the restrictions on currency exchanges may
limit our ability to use revenues generated in Renminbi to fund our business
activities outside the PRC or to make dividends or other payments in United
States dollars. The PRC government strictly regulates conversion of Renminbi
into foreign currencies. Over the years, foreign exchange regulations in the PRC
have significantly reduced the government’s control over routine foreign
exchange transactions under current accounts. In the PRC, the State
Administration for Foreign Exchange, or the SAFE, regulates the conversion of
the Renminbi into foreign currencies. Pursuant to applicable PRC laws and
regulations, foreign invested enterprises incorporated in the PRC are required
to apply for “Foreign Exchange Registration Certificates.” Currently, conversion
within the scope of the “current account” (such as remittance of foreign
currencies for payment of dividends) can be effected without requiring the
approval of SAFE. However, conversion of currency in the “capital account” (for
capital items such as direct investments, loans, securities) still requires the
approval of SAFE.




The
Chinese government exerts substantial influence over the manner in which we must
conduct our business activities.




China only recently has permitted
provincial and local economic autonomy and private economic activities, and, as
a result, we are dependent on our relationship with the local government in the
province in which we operate our business. Chinese government has exercised and
continues to exercise substantial control over virtually every sector of the
Chinese economy through regulation and state ownership. Our ability to operate
in China may be harmed by changes in its laws and regulations, including those
relating to taxation, environmental regulations, land use rights, property and
other matters. We believe that our operations in China are in material
compliance with all applicable legal and regulatory requirements. However, the
central or local governments of these jurisdictions may impose new, stricter
regulations or interpretations of existing regulations that would require
additional expenditures and efforts on our part to ensure our compliance with
such regulations or interpretations. Accordingly, government actions in the
future, including any decision not to continue to support recent economic
reforms and to return to a more centrally planned economy or regional or local
variations in the implementation of economic policies, could have a significant
effect on economic conditions in China or particular regions thereof, and could
require us to divest ourselves of any interest we then hold in Chinese
properties.




Future
inflation in China may inhibit our activity to conduct business in
China.




In recent years, the Chinese economy
has experienced periods of rapid expansion and high rates of inflation. These
factors have led to the adoption by Chinese government, from time to time, of
various corrective measures designed to restrict the availability of credit or
regulate growth and contain inflation. High inflation may in the future cause
Chinese government to impose controls on credit and/or prices, or to take other
action, which could inhibit economic activity in China, and thereby harm the
market for our products.




We
may have difficulty establishing adequate management, legal and financial
controls in the PRC.




We may have difficulty in hiring and
retaining a sufficient number of qualified employees to work in the PRC. As a
result of these factors, we may experience difficulty in establishing
management, legal and financial controls, collecting financial data and
preparing financial statements, books of account and corporate records and
instituting business practices that meet Western standards. We may have
difficulty establishing adequate management, legal and financial controls in the
PRC.




You
may experience difficulties in effecting service of legal process, enforcing
foreign judgments or bringing original actions in China based on United States
or other foreign laws against us and our management.




We conduct substantially all of our
operations in China and substantially all of our assets are located in China. In
addition, some of our directors and executive officers reside within China. As a
result, it may not be possible to effect service of process within the United
States or elsewhere outside China upon some of our directors and senior
executive officers, including with respect to matters arising under U.S. federal
securities laws or applicable state securities laws. It would also be difficult
for investors to bring an original lawsuit against us or our directors or
executive officers before a Chinese court based on U.S. federal securities laws
or otherwise. Moreover, China does not have treaties with the United States or
many other countries providing for the reciprocal recognition and enforcement of
judgment of courts.


28




Because
Chinese laws will govern almost all of our business’ material agreements, we may
not be able to enforce our rights within the PRC or elsewhere, which could
result in a significant loss of business, business opportunities or
capital.




The Chinese legal system is similar to
a civil law system based on written statutes. Unlike common law systems, it is a
system in which decided legal cases have little precedential value. Although
legislation in the PRC over the past 25 years has significantly improved the
protection afforded to various forms of foreign investment and contractual
arrangements in the PRC, these laws, regulations and legal requirements are
relatively new. Due to the limited volume of published judicial decisions, their
non-binding nature, the short history since their enactments, the discrete
understanding of the judges or government agencies of the same legal provision,
inconsistent professional abilities of the judicators, and the inclination to
protect local interest in the court rooms, interpretation and enforcement of PRC
laws and regulations involve uncertainties, which could limit the legal
protection available to us, and foreign investors. The inability to enforce or
obtain a remedy under any of our future agreements could result in a significant
loss of business, business opportunities or capital and could have a material
adverse impact on our business, prospects, financial condition, and results of
operations. In addition, the PRC legal system is based in part on government
policies and internal rules (some of which are not published on a timely basis
or at all) that may have a retroactive effect. As a result, we may not be aware
of our violation of these policies and rules until some time after the
violation. In addition, any litigation in the PRC, regardless of outcome, may be
protracted and result in substantial costs and diversion of resources and
management attention.




Risks
Related to our Securities




Insiders
have substantial control over us, and they could delay or prevent a change in
our corporate control even if our other stockholders wanted it to
occur.




Our executive officers, directors, and
principal stockholders hold approximately 81.06% of our outstanding common
stock. Accordingly, these stockholders are able to control all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This could delay or prevent an outside party
from acquiring or merging with us even if our other stockholders wanted it to
occur.




We
cannot assure you that our common stock will become liquid or that it will be
listed on a securities exchange.




Currently, we are quoted on the OTC
Bulletin Board, where an investor may find it difficult to obtain accurate
quotations as to the market value of the common stock. In addition, if we fail
to meet the criteria set forth in SEC regulations, by law, various requirements
would be imposed on broker-dealers who sell its securities to persons other than
established customers and accredited investors. Consequently, such regulations
may deter broker-dealers from recommending or selling our common stock, which
may further affect its liquidity. We have applied to list our common stock on
the NASDAQ Capital Market. We cannot give you any assurance that a broader or
more active public trading market for our common stock will develop on the
NASDAQ Capital Market or be sustained, or that current trading levels will be
sustained.




If
we are listed on the NASDAQ Stock Market, LLC, our common stock may be
subsequently delisted, which could negatively impact the price of our common
stock and our ability to access the capital markets.




The listing standards of the NASDAQ
Stock Market, LLC provide that a company, in order to qualify for continued
listing, must maintain a minimum stock price of $1.00 and satisfy standards
relative to minimum shareholders’ equity, minimum market value of publicly held
shares and various additional requirements. If we fail to comply with all
listing standards applicable to issuers listed on the NASDAQ Markets, our common
stock may be delisted. If our common stock is delisted, it could reduce the
price of our common stock and the levels of liquidity available to our
shareholders. In addition, the delisting of our common stock could materially
adversely affect our access to the capital markets and any limitation on
liquidity or reduction in the price of our common stock could materially
adversely affect our ability to raise capital. Delisting from NASDAQ could also
result in other negative consequences, including the potential loss of
confidence by suppliers, customers and employees, the loss of institutional
investor interest and fewer business development opportunities.


29




There
may not be sufficient liquidity in the market for our securities in order for
investors to sell their securities.




There is currently only a limited
public market for our common stock and there can be no assurance that a trading
market will develop further or be maintained in the future.




The
market price of our common stock may be volatile.





The market price of our common stock
has been and will likely continue to be highly volatile, as is the stock market
in general, and the market for OTC Bulletin Board quoted stocks in particular.
Some of the factors that may materially affect the market price of our common
stock are beyond our control, such as changes in financial estimates by industry
and securities analysts, conditions or trends in the industry in which we
operate or sales of our common stock. These factors may materially and adversely
affect the market price of our common stock, regardless of our performance. In
addition, the public stock markets have experienced extreme price and trading
volume volatility. This volatility has significantly affected the market prices
of securities of many companies for reasons frequently unrelated to the
operating performance of the specific companies. These broad market fluctuations
may adversely affect the market price of our common stock.




Because
we became a public company by means of a reverse merger, it may not be able to
attract the attention of major brokerage firms.




Securities analysts of major brokerage
firms may not provide coverage of our securities since there is little incentive
to brokerage firms to recommend the purchase of our common stock. No assurance
can be given that brokerage firms will want to conduct any secondary offerings
on our behalf in the future.




When
the registration statement required to be filed under the Registration Rights
Agreement becomes effective, there will be a significant number of shares of
common stock eligible for sale, which could depress the market price of our
common stock.




Following the effective date of the
registration statement required to be filed under the Registration Rights
Agreement, a large number of shares of common stock would become available for
sale in the public market, which could harm the market price of our common
stock. Further, shares may be offered from time to time in the open market
pursuant to Rule 144, and these sales may have a depressive effect as well.
Although the current holding period under Rule 144 for our common stock ends on
March 4, 2011 (which represents one year from the date that we filed “Form 10
information” with the SEC), in general, and after March 4, 2011, a person who
has held restricted shares for a period of six months may, upon filing a
notification with the SEC on Form 144, sell common stock into the market in an
amount equal to the greater of one percent of the outstanding shares or the
average weekly trading volume during the last four weeks prior to such
sale.




Our
common stock is considered “penny stock.”




The SEC has adopted regulations which
generally define “penny stock” to be an equity security that has a market price
of less than $5.00 per share, subject to specific exemptions. The market price
of our common stock is currently less than $5.00 per share and therefore may be
a “penny stock.” Brokers and dealers effecting transactions in “penny stock”
must disclose certain information concerning the transaction, obtain a written
agreement from the purchaser and determine that the purchaser is reasonably
suitable to purchase the securities. These rules may restrict the ability of
brokers or dealers to sell the common stock and may affect your ability to sell
shares.




The
market for penny stocks has experienced numerous frauds and abuses which could
adversely impact investors in our stock.




OTC Bulletin Board securities are
frequent targets of fraud or market manipulation, both because of their
generally low prices and because OTC Bulletin Board reporting requirements are
less stringent than those of the stock exchanges or NASDAQ.




Patterns of fraud and abuse
include:


30





•  Control of the market for
the security by one or a few broker-dealers that are often related to the
promoter or issuer;




•  Manipulation of prices
through prearranged matching of purchases and sales and false and misleading
press releases;




•  “Boiler room” practices
involving high pressure sales tactics and unrealistic price projections by
inexperienced sales persons;




•  Excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and




•  Wholesale dumping of the
same securities by promoters and broker-dealers after prices have been
manipulated to a desired level, along with the inevitable collapse of those
prices with consequent investor losses.




Our
management is aware of the abuses that have occurred historically in the penny
stock market.




We
have not paid dividends in the past and do not expect to pay dividends in the
future, and any return on investment may be limited to the value of our
stock.




We have never paid any cash dividends
on our common stock and do not anticipate paying any cash dividends on our
common stock in the foreseeable future and any return on investment may be
limited to the value of our common stock. We plan to retain any future earning
to finance growth.




Item
      1B
            Unresolved
      Staff Comments




None.




Item
      2
            Properties.




The
following table summarizes the location of real property we lease. As all
property in China is state owned, neither we, nor any company, owns any real
property.




Item
                
                Address
                
                Leased/Owned1
                
                Unit
      401-405.4/F, Tower B, Wanliuxingui Building, 28 Wanquanzhuang Road,
      Haidian District, Beijing, China
                
                Leased2
                
                Unit
      702.7/F, Tower B, Wanliuxingui Building, 28 Wanquanzhuang Road,
      Haidian District, Beijing, China
                
                Leased3
                
                Unit
      1805.18/F, Tower Two, Lippo Centre, 89 Queensway, Admiralty, Hong
      Kong
                
                Leased




Our
principal executive office is located at Unit 401-405.4/F, Tower B, Wanliuxingui
Building, 28 Wanquanzhuang Road, Haidian District, Beijing, China 100089. The
rentable space in this office consists of approximately 684 square meters
(approximately 7,359 square feet).  The lease agreement has a 5-year
term which expires on April 23, 2013.  The monthly rental payment is
approximately $18,277 (RMB 124,834).




We also
lease office space at Unit 702.7/F, Tower B, Wanliuxingui Building, 28
Wanquanzhuang Road, Haidian District, Beijing, China. The rentable space in this
office consists of approximately 181 square meters (approximately 1,947 square
feet).  The lease agreement has a one-year term which expires on
December 31, 2010.  The monthly rental payment is approximately $4,363
(RMB 29,802).




We also
lease office space at Unit 1805.18/F, Tower Two, Lippo Centre, 89 Queensway,
Admiralty, Hong Kong. The rentable space in this office consists of
approximately 151 square meters (approximately 1,625 square
feet).  The lease agreement has a 2-year term which expires on
September 30, 2010.  The monthly rental payment is approximately
$11,058 (RMB 75,524).


31




Item
      3.
            Legal
      Proceedings




We may be subject to legal proceedings,
investigations and claims incidental to the conduct of our business from time to
time. We are not currently a party to any litigation or other legal proceedings
brought against us. We are also not aware of any legal proceeding, investigation
or claim, or other legal exposure that has a more than remote possibility of
having a material adverse effect on our business, financial condition or results
of operations.


32




PART
II




Item
      4
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.




Market
Price Information for our Common Stock




Our common stock is quoted on the OTC
Bulletin Board under the trading symbol “LNDT.” Prior to April 21, 2010, our
common stock was quoted on the OTC Bulletin Board under the trading symbol
“RMSI.” We have applied to have our common stock listed on the NASDAQ Capital
Market under the symbol “LCTI.”




The following table sets forth the high
and low bid information for our common stock for the period from January 1, 2008
through June 21, 2010. The OTC Bulletin Board quotations reflect inter-dealer
prices, are without retail markup, markdowns or commissions, and may not
represent actual transactions.




Common StockHigh
                  
                  
                  LowFirst
      quarter 2008
                  
                  $
                  0.45
                  
                  
                  $
                  0.45Second
      quarter 2008
                  
                  $
                  0.45
                  
                  
                  $
                  0.45Third
      quarter 2008
                  
                  $
                  0.45
                  
                  
                  $
                  0.25Fourth
      quarter 2008
                  
                  $
                  0.25
                  
                  
                  $
                  0.25First
      quarter 2009
                  
                  $
                  0.25
                  
                  
                  $
                  0.25Second
      quarter 2009
                  
                  $
                  0.25
                  
                  
                  $
                  0.25Third
      quarter 2009
                  
                  $
                  0.25
                  
                  
                  $
                  0.25Fourth
      quarter 2009
                  
                  $
                  0.25
                  
                  
                  $
                  0.25First
      quarter 2010*
                  
                  $
                  6.08
                  
                  
                  $
                  2.00Second
      quarter 2010 through June 21, 2010
                  
                  $
                  5.60
                  
                  
                  $
                  2.25





* No bid information was available for
the period commencing on January 1, 2010 and ending on February 28,
2010.




On June 21, 2010, the last reported
price for our common stock on the OTC Bulletin Board was $4.26.




Number
of Record Holders of Our Common Stock




As of June 21, 2010, we had 29,358,772
shares of our common stock outstanding and 144 holders of record of our common
stock.  The number of record holders was determined from the records
of our transfer agent and does not include beneficial owners of common stock, of
which we have over 160, whose shares are held in the names of various security
brokers, dealers and registered clearing agencies.




Dividend
Policy




We have never declared or paid cash
dividends on our capital stock and do not anticipate declaring or paying cash
dividends on our common stock in the foreseeable future. Payments of future
dividends on our common stock, if any, will be at the discretion of our board of
directors after taking into account various factors, including our financial
condition, operating results, current and anticipated cash needs, plans for
expansion and other factors that our board of directors may deem
relevant.


33




Securities
Authorized for Issuance Under Equity Compensation Plans




None.




Recent
Sales of Unregistered Securities




Sales of
unregistered securities by the Company have been previously disclosed in our
Current Reports on Form 8-K and Quarterly Reports on Form 10-Q filed with the
SEC.




Item
      5
            Selected
      Financial Data




Not
applicable to smaller reporting companies.




Item
      6
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations




You
should read the following discussion and analysis of our financial condition and
results of operations in conjunction with our audited consolidated financial
statements and the related notes to the consolidated financial statements
included elsewhere in this Form 10-K. Our audited consolidated financial
statements have been prepared in accordance with U.S. GAAP. In addition, our
audited consolidated financial statements and the financial data included in
this Form 10-K reflect our reorganization and have been prepared as if our
current corporate structure had been in place throughout the relevant periods.
The following discussion and analysis contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, including, without
limitation, statements regarding our expectations, beliefs, intentions or future
strategies that are signified by the words “expect,” “anticipate,” “intend,”
“believe,” or similar language. All forward-looking statements included in this
document are based on information available to us on the date hereof, and we
assume no obligation to update any such forward-looking statements. Our business
and financial performance are subject to substantial risks and uncertainties.
Actual results could differ materially from those projected in the
forward-looking statements. In evaluating our business, you should carefully
consider the information set forth under the heading “Risk Factors” and
elsewhere in this Form 10-K. Readers are cautioned not to place undue reliance
on these forward-looking statements.




Company
Structure and Reorganization




Our
company (formerly known as Remediation Services, Inc.) was incorporated in the
State of Texas on June 25, 1999 under the name Slopestyle
Corporation.  On December 12, 2007, we changed our name from
Slopestyle Corporation to Remediation Services, Inc. (“Remediation”) and
re-domiciled from Texas to Nevada.  On February 26, 2010, we completed
a reverse acquisition of China LianDi Clean Technology Engineering Ltd. (“China
LianDi”), which is further described below. The reverse acquisition of China
LianDi resulted in a change-in-control of our company.




On
February 26, 2010 (the “Closing Date”), we consummated the transactions
contemplated by the Share Exchange Agreement (the “Exchange Agreement”), by and
among (i) China LianDi and China LianDi’s shareholders, (collectively, the
“China LianDi Shareholders”), who together owned shares constituting 100% of the
issued and outstanding ordinary shares of China LianDi (the “China LianDi
Shares”) and (ii) the former principal stockholder of our company. Immediately
prior to the Share Exchange, 4,690,000 shares of our common stock then
outstanding were cancelled and retired, so that immediately prior to the Share
Exchange, we had 28,571,430 shares issued and outstanding. Pursuant to the terms
of the Exchange Agreement, the China LianDi Shareholders transferred to us all
of the China LianDi Shares in exchange for the issuance of 27,354,480 shares of
our common stock, par value $0.001 per share (such transaction, the “Share
Exchange”), representing approximately 96% of our shares of common stock then
issued and outstanding. China LianDi also paid $275,000 to our former principal
shareholder, owner of the cancelled shares, as a result of the Share Exchange
having been consummated.




As a
result, the Share Exchange has been accounted for as a reverse acquisition
whereby China LianDi is deemed to be the accounting acquirer (legal acquiree)
and us to be the accounting acquiree (legal acquirer).  The financial
statements before the Share Exchange are those of China LianDi with the results
of us being consolidated from the Closing Date. The equity section and earnings
per share of our company have been retroactively restated to reflect the reverse
acquisition and no goodwill has been recorded.


34




On March
17, 2010, we caused to be formed a corporation under the laws of the State of
Nevada called LianDi Clean Technology Inc. (“Merger Sub”) and on the same day,
acquired one hundred shares of Merger Sub’s common stock for cash.  As
such, Merger Sub became a wholly-owned subsidiary of us.




Effective
as of April 1, 2010, Merger Sub was merged with and into our company. As a
result of the merger, our corporate name was changed to “LianDi Clean Technology
Inc.”  Prior to the merger, Merger Sub had no liabilities and nominal
assets and, as a result of the merger, the separate existence of the Merger Sub
ceased.  LianDi Clean was the surviving corporation in the merger and,
except for the name change provided for in the Agreement and Plan of Merger,
there was no change in the directors, officers, capital structure or business of
our company.




Our
company now became a holding company and, through our subsidiaries, is primarily
engaged in distributing clean technology for refineries (unheading units for the
delayed coking process), distributing a wide range of petroleum and
petrochemical valves and equipments, providing systems integration, developing
and marketing optimization software for the polymerization process and providing
related technical and engineering services to large domestic Chinese petroleum
and petrochemical companies and other energy companies.




Details
of our company’s subsidiaries as of March 31, 2010 were as follows:




Subsidiaries’ names
                
                Place and date of
                    incorporation
                
                Percentage of
                    ownership
                
                Principal activitiesChina
      LianDi Clean Technology Engineering Ltd. (“China LianDi”)
                
                British
      Virgin Islands
                  July
      28, 2004
                
                100%
                  (directly
      by our company)
                
                Holding
      company of the other subsidiariesHua
      Shen Trading (International) Limited (“Hua Shen HK”)
                
                Hong
      Kong
                  January
      20, 1999
                
                100%
                  (through
      China LianDi)
                
                Delivering
      industrial valves and other equipment with the related integration and
      technical servicesPetrochemical
      Engineering Limited (“PEL HK”)
                
                Hong
      Kong
                  September
      13, 2007
                
                100%
                  (through
      China LianDi)
                
                Delivering
      industrial valves and other equipment with the related integration and
      technical services, and investment holdingBright
      Flow Control Ltd. (“Bright Flow”)
                
                Hong
      Kong
                  December
      17, 2007
                
                100%
                  (through
      China LianDi)
                
                Delivering
      industrial valves and other equipment with the related integration and
      technical servicesBeijing
      JianXin Petrochemical Engineering Ltd. (“Beijing JianXin”)
                
                People’s
      Republic of China (“PRC”)
                  May
      6, 2008
                
                100%
                  (through
      PEL HK)
                
                Delivering
      industrial valves and other equipment with the related integration and
      technical services, developing and marketing optimization software for
      polymerization processes, and provision of delayed coking solutions for
      petrochemical, petroleum and other energy
  companies




In July
2004, China LianDi was founded and owned as to 60% by Mr. Jianzhong Zuo, the
Chief Executive Officer and Chairman of our company, and 40% by another
third-party minority shareholder. On October 2, 2007, Mr. Zuo acquired from that
minority shareholder the remaining 40% interest in China LianDi for US$1, and
hence became the sole shareholder of China LianDi. On March 6, 2008, SJ Asia
Pacific Limited (a company incorporated in the British Virgin Islands and wholly
owned by SJI Inc., which was incorporated in Japan and whose shares are listed
on Jasdaq Securities Exchange, Inc. in Japan) acquired 51% interest in
China LianDi from Mr. Zuo in exchange for: (i) US$1.00; (ii) the commitment to
invest HK$60,000,000 (or approximately $7.7 million) in China LianDi; and (iii)
the provision of financial support for China LianDi by way of unlimited
shareholder’s loan bearing interest at a rate not exceeding 5% per annum. As a
result, at such times China LianDi was owned 51% by SJ Asia Pacific Limited
and 49% by Mr. Zuo.


35




On
January 8, 2010, Mr. Zuo transferred 25%, 14% and 10% interest in China LianDi
to China LianDi Energy Resources Engineering Technology Ltd. (“LianDi Energy,” a
company wholly owned by Mr. Zuo), Hua Shen Trading
(International) Ltd.  (“Hua Shen,”a company
incorporated in the British Virgin Islands and wholly owned by SJ Asia
Pacific Limited; Mr. Zuo is a director of this company and holds voting and
dispositive power over the shares held by it) and Rapid Capital Holdings Ltd.
(“Rapid Capital”), respectively.  On February 10, 2010, SJ Asia
Pacific Limited and LianDi Energy transferred 28.06% and 1.47% of their
respective interests in China LianDi to Rapid Capital (26.53%) and Tripoint
Capital Advisors, LLC (3%), respectively.  On February 12, 2010, Rapid
Capital transferred its 31.53% interest in China LianDi to LianDi Energy
(15.53%), Hua Shen (11%) and Dragon Excel Holdings Ltd (5%). As a result,
immediately before the Share Exchange as discussed below, China LianDi was
owned 23% by SJ Asia Pacific Limited and 64% by Mr. Zuo (through LianDi Energy
and Hua Shen).




Hua Shen
HK was founded by Mr. Zuo in 1999.  On January 8, 2008, China LianDi
acquired 100% ownership interest in Hua Shen HK from Mr. Zuo. As Hua Shen HK and
China LianDi had been under common control, the acquisition of Hua Shen HK by
China LianDi has been accounted for using the “as if” pooling method of
accounting.




In 2007,
China LianDi established PEL HK and Bright Flow, as wholly-owned subsidiaries,
in Hong Kong.




In 2008,
PEL HK established Beijing JianXin, as a wholly-owned subsidiary, in the
PRC.




Private
Placement




On
February 26, 2010 and immediately following the Share Exchange, we completed a
private placement transaction (the “Private Placement”) pursuant to a securities
purchase agreement with certain investors (collectively, the “Investors”) and
sold 787,342 units (the “Units”) at a purchase price of $35 per Unit, consisting
of, in the aggregate, (a) 7,086,078 shares of Series A convertible preferred
stock, par value $0.001 per share (the “Series A Preferred Stock”) convertible
into the same number of shares of common stock, (b) 787,342 shares of common
stock (the “Issued Common Shares”), (c) Series A Warrants (the “Series A
Warrants”) to purchase up to 1,968,363 shares of common stock, at an exercise
price of $4.50 per share (the “Series A Warrant Shares”) for a three-year
period, and (d) Series B Warrants (the “Series B Warrants” and, together with
the Series A Warrants, the “Warrants”) to purchase up to 1,968,363 shares of
common stock, at an exercise price of $5.75 per share (the “Series B Warrant
Shares” and, together with the Series A Warrant Shares, the “Warrant Shares”)
for a three-year period.  We also
issued to the placement agent in the Private Placement (i) warrants to purchase
787,382 shares of common stock at an exercise price of $3.50, (ii) Series A
Warrants to purchase 196,836 shares of common stock, and (iii) Series B Warrants
t o purchase 196,836 shares of common stock, which expire in three years on
February 26, 2013.We received aggregate gross proceeds of approximately
$27.56 million from the Private Placement.




Basis
of preparation and consolidation and use of estimates




Our
audited consolidated financial statements for the years ended March 31, 2010 and
2009 are prepared in accordance with US GAAP.




Our
consolidated financial statements include the financial statements of our
company and our subsidiaries. All significant inter-company transactions and
balances between our company and our subsidiaries have been eliminated upon
consolidation.




The
preparation of these consolidated financial statements in conformity with US
GAAP requires our management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the related disclosure of contingent
assets and liabilities at the date of these consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period.
Our management bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances.
Accordingly, actual results may differ from these estimates under different
assumptions or conditions.


36




Recent
Accounting Pronouncements




In June
2009, the FASB established the FASB Accounting Standards Codification TM(ASC)
as the single source of authoritative U.S generally accepted accounting
principles (“GAAP”) recognized by the FASB to be applied to nongovernmental
entities. Rules and interpretive releases of the Securities and Exchange
Commission (“SEC”) under authority of federal securities laws are also sources
of authoritative GAAP for SEC registrants. The ASC superseded all previously
existing non-SEC accounting and reporting standards, and any prior sources of
U.S. GAAP not included in the ASC or grandfathered are not authoritative. New
accounting standards issued subsequent to June 30, 2009 are communicated by the
FASB through Accounting Standards Updates (“ASUs”). The ASC did not change
current U.S. GAAP but changes the approach by referencing authoritative
literature by topic (each a “Topic”) rather than by type of standard. This ASC
is effective for interim and annual periods ending after September 15, 2009.
Adoption of the ASC did not have a material impact on our Consolidated Financial
Statements, but references in our notes to consolidated financial statements to
former FASB positions, statements, interpretations, opinions, bulletins or other
pronouncements are now presented as references to the corresponding Topic in the
ASC.




Effective
April 1, 2009, we adopted FASB ASC 350-30 and ASC 275-10-50 (formerly FSP FAS
142-3, Determination of the
Useful Life of Intangible Assets), which amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under SFAS No. 142 (“SFAS 142”)
Goodwill and Other Intangible
Assets. We will apply ASC 250-30 and ASC 275-10-5- prospectively to
intangible assets acquired subsequent to the adoption date. The adoption of
these revised provisions did not have a material impact on our consolidated
financial statements.




Effective
April 1, 2009, we adopted FASB ASC 815-10-65 (formerly SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities), which amends and expands previously
existing guidance on derivative instruments to require tabular disclosure of the
fair value of derivative instruments and their gains and losses. This ASC also
requires disclosure regarding the credit-risk related contingent features in
derivative agreements, counterparty credit risk, and strategies and objectives
for using derivative instruments. The adoption of this ASC did not have a
material impact on our consolidated financial statements.




Upon
initial adoption of SFAS 157 on April 1, 2008, we adopted FASB ASC 820-10
(formerly FSP FAS 157-2, Effective Date of FASB Statement
157), which deferred the provisions of previously issued fair value
guidance for nonfinancial assets and liabilities to the first fiscal period
beginning after November 15, 2008. Deferred nonfinancial assets and liabilities
include items such as goodwill and other non-amortizable intangibles. Effective
April 1, 2009, we adopted the fair value guidance for nonfinancial assets and
liabilities. The adoption of FASB ASC 820-10 did not have a material impact on
our consolidated financial statements.




Effective
April 1, 2009, we adopted FASB ASC 810-10-65 (formerly SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements — an amendment of ARB No. 51), which
amends previously issued guidance to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in
a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as equity.
Among other requirements, this statement requires that the consolidated net
income attributable to the parent and the noncontrolling interest be clearly
identified and presented on the face of the consolidated income statement. The
adoption of the provisions in this ASC did not have a material impact on our
consolidated financial statements.




Effective
April 1, 2009, we adopted FASB ASC 805-10, (formerly SFAS 141R, Business Combinations), which
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in an acquiree and the goodwill
acquired. In addition, the provisions in this ASC require that any
additional reversal of deferred tax asset valuation allowance established in
connection with fresh start reporting on January 7, 1998 be recorded as a
component of income tax expense rather than as a reduction to the goodwill
established in connection with the fresh start reporting. We will apply ASC
805-10 to any business combination subsequent to adoption.


37




Effective
April 1, 2009, we adopted FASB ASC 805-20 (formerly FSP FAS 141R-1, Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies), which amends ASC 805-10 to require that an acquirer
recognize at fair value, at the acquisition date, an asset acquired or a
liability assumed in a business combination that arises from a contingency if
the acquisition-date fair value of that asset or liability can be determined
during the measurement period. If the acquisition-date fair value of such an
asset acquired or liability assumed cannot be determined, the acquirer should
apply the provisions of ASC Topic 450, Contingences, to determine
whether the contingency should be recognized at the acquisition date or after
such date. The adoption of ASC 805-20 did not have a material impact on our
consolidated financial statements.




Effective
July 1, 2009, we adopted FASB ASC 825-10-65 (formerly FSP FAS 107-1 and
Accounting Principles Board 28-1, Interim Disclosures about Fair Value
of Financial Instruments), which amends previous guidance to require
disclosures about fair value of financial instruments for interim reporting
periods of publicly traded companies as well as in annual financial statements.
The adoption of FASB ASC 825-10-65 did not have a material impact on our
consolidated financial statements.




Effective
July 1, 2009, we adopted FASB ASC 320-10-65 (formerly FSP FAS 115-2 and FAS
124-2, Recognition and
Presentation of Other-Than-Temporary Impairments). Under ASC 320-10-65,
an other-than-temporary impairment must be recognized if the company has the
intent to sell a debt security or the company is more likely than not to be
required to sell the debt security before its anticipated recovery. In addition,
ASC 320-10-65 requires impairments related to credit loss, which is the
difference between the present value of the cash flows expected to be collected
and the amortized cost basis for each security, to be recognized in earnings
while impairments related to all other factors are recognized in other
comprehensive income. The adoption of ASC 320-10-65 did not have a material
impact on our consolidated financial statements.




Effective
July 1, 2009, we adopted FASB ASC 820-10-65 (formerly FSP FAS 157-4, Determining
Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly),
which provides guidance on how to determine the fair value of assets and
liabilities when the volume and level of activity for the asset or liability has
significantly decreased when compared with normal market activity for the asset
or liability as well as guidance on identifying circumstances that indicate a
transaction is not orderly. The adoption of ASC 820-10-65 did not have a
material impact on our consolidated financial statements.




Effective
July 1, 2009, we adopted FASB ASC 855-10 (formerly SFAS 165, Subsequent Events), which
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date, but before financial statements are issued
or are available to be issued. Adoption of ASC 855-10 did not have a material
impact on our consolidated financial statements.




Effective
September 1, 2009, we adopted ASC 715, Compensation – Retirement Benefits
(formerly FASB FSP FAS 132(R)-1, Employers’ Disclosures about Postretirement
Benefit Plan Assets), which expands the disclosure requirements about plan
assets for defined benefit pension plans and postretirement plans. The adoption
of these disclosure requirements did not have any material effect on our
consolidated financial statements.




In the
quarter ended December 31, 2009, we adopted ASC Update No. 2009-05, which
provides guidance on measuring the fair value of liabilities under FASB ASC 820
(formerly SFAS 157, Fair Value Measurements).  The adoption of this
Update has had no material effect on our consolidated financial
statements.




In
January 2010, the FASB issued ASU No. 2010-05—Compensation—Stock Compensation
(Topic 718): Escrowed Share Arrangements and the Presumption of Compensation.
This Update simply codifies EITF Topic No. D-110, “Escrowed Share Arrangements
and the Presumption of Compensation” dated June 18, 2009. ASU No. 2010-05
includes the SEC staff announcement at the EITF meeting that clarified SEC staff
views on overcoming the presumption that for certain shareholders escrowed share
arrangements represent compensation. Historically, the SEC staff has expressed
the view that an escrowed share arrangement involving the release of shares to
certain shareholders based on performance-related criteria is presumed to be
compensatory. The SEC staff clarified that entities should consider the
substance of the transaction in evaluating whether the presumption of
compensation may be overcome, including whether the transaction was entered into
for a reason unrelated to employment, such as to facilitate a financing
transaction. In that situation, the staff generally believes that the Escrowed
Shares should be reflected as a discount in the allocation of
proceeds.  We have applied the guidance in ASU No. 2010-05 to the
escrowed share arrangement in conjunction with the Private
Placement.


38




New
accounting pronouncement to be adopted




In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets – an amendment of FASB Statement No. 140, (codified
by ASU No. 2009-16 issued in December 2009). SFAS No. 166 limits the
circumstances in which a financial asset should be derecognized when the
transferor has not transferred the entire financial asset by taking into
consideration the transferor’s continuing involvement. The standard requires
that a transferor recognize and initially measure at fair value all assets
obtained (including a transferor’s beneficial interest) and liabilities incurred
as a result of a transfer of financial assets accounted for as a sale. The
concept of a qualifying special-purpose entity is removed from SFAS
No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” along with the exception from applying FIN
46(R), Consolidation of
Variable Interest Entities. The standard is effective for the first
annual reporting period that begins after November 15, 2009 (our fiscal
year ending March 31, 2011). Earlier application is prohibited. It is expected
the adoption of this statement will have no material effect on our consolidated
financial statements.




In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R), (codified by ASU No. 2009-17 issued in December 2009). The
standard amends FIN No. 46(R) to require a company to analyze whether its
interest in a variable interest entity (“VIE”) gives it a controlling financial
interest. A company must assess whether it has an implicit financial
responsibility to ensure that the VIE operates as designed when determining
whether it has the power to direct the activities of the VIE that significantly
impact its economic performance. Ongoing reassessments of whether a company is
the primary beneficiary are also required by the standard. SFAS No. 167
amends the criteria to qualify as a primary beneficiary as well as how to
determine the existence of a VIE. The standard also eliminates certain
exceptions that were available under FIN No. 46(R). This statement will be
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009 (our fiscal year ending March
31, 2011). Earlier application is prohibited. Comparative disclosures will be
required for periods after the effective date. It is expected that the adoption
of this statement will have no material effect on our consolidated financial
statements.




In
October 2009, the FASB concurrently issued the following ASUs:




·
            ASU
      No. 2009-13—Revenue Recognition (ASC Topic 605): Multiple-Deliverable
      Revenue Arrangements (formerly EITF Issue No. 08-1). ASU No. 2009-13
      modifies the revenue recognition guidance for arrangements that involve
      the delivery of multiple elements, such as product, software, services or
      support, to a customer at different times as part of a single revenue
      generating transaction. This standard provides principles and
      application guidance to determine whether multiple deliverables exist, how
      the individual deliverables should be separated and how to allocate the
      revenue in the arrangement among those separate deliverables. The standard
      also expands the disclosure requirements for multiple deliverable revenue
      arrangements.




·
            ASU
      No. 2009-14—Software (ASC Topic 985): Certain Revenue Arrangements That
      Include Software Elements (formerly EITF Issue No. 09-3). ASU No. 2009-14
      removes tangible products from the scope of software revenue recognition
      guidance and also provides guidance on determining whether software
      deliverables in an arrangement that includes a tangible product, such as
      embedded software, are within the scope of the software revenue
      guidance.




ASU No.
2009-13 and ASU No. 2009-14 should be applied on a prospective basis for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010, with earlier application permitted. Alternatively, an
entity can elect to adopt these standards on a retrospective basis, but both
these standards must be adopted in the same period using the same transition
method. We expect to apply these ASUs on a prospective basis for revenue
arrangements entered into or materially modified beginning April 1, 2011. We are
currently evaluating the potential impact these ASUs may have on our financial
position and results of operations.




In
January 2010, the FASB issued the following ASU:




·
            ASU
      No. 2010-01—Equity (Topic 505): Accounting for Distributions to
      Shareholders with Components of Stock and Cash. This update clarifies that
      the stock portion of a distribution to shareholders that allows them to
      elect to receive cash or stock with a potential limitation on the total
      amount of cash that all shareholders can elect to receive in the aggregate
      is considered a share issuance that is reflected in EPS prospectively and
      is not a stock dividend for purposes of applying Topics 505 and 260
      (Equity and Earnings Per Share). The amendments in this update are
      effective for interim and annual periods ending on or after December 15,
      2009 with retrospective
application.


39




·
            ASU
      No. 2010-02—Consolidation (Topic 810): Accounting and Reporting for
      Decreases in Ownership of a Subsidiary. This update amends Subtopic 810-10
      and related guidance to clarify that the scope of the decrease in
      ownership provisions of the Subtopic and related guidance applies to (i) a
      subsidiary or group of assets that is a business or nonprofit activity;
      (ii) a subsidiary that is a business or nonprofit activity that is
      transferred to an equity method investee or joint venture; and (iii) an
      exchange of a group of assets that constitutes a business or nonprofit
      activity for a noncontrolling interest in an entity, but does not apply
      to: (i) sales of substantial real estate; and (ii) conveyances of oil and
      gas mineral rights. The amendments in this update are effective beginning
      the period that an entity adopts FAS 160 (now included in Subtopic
      810-10).




·
            ASU
      No. 2010-06—Fair Value Measurements and Disclosures (Topic 820): Improving
      Disclosures about Fair Value Measurements. This update amends Subtopic
      820-10 that requires new disclosures about transfers in and out of Levels
      1 and 2 and activity in Level 3 fair value measurements. This update also
      amends Subtopic 820-10 to clarify certain existing disclosures. The new
      disclosures and clarifications of existing disclosures are effective for
      interim and annual reporting periods beginning after December 15, 2009,
      except for the disclosures about purchases, sales, issuances, and
      settlements in the roll forward of activity in Level 3 fair value
      measurements, which are effective for fiscal year beginning after December
      15, 2010.




We expect
that the adoption of the above updates issued in January 2010 will not have any
significant impact on our financial position and results of
operations.




In April
2010, the FASB issued ASU No. 2010-13—Compensation—Stock Compensation
(Topic718),which
addresses the classification of an employee share-based payment award with an
exercise price denominated in the currency of a market in which the underlying
equity security trades. This Update provides amendments to Topic 718 to clarify
that an employee share-based payment award with an exercise price denominated in
the currency of a market in which a substantial portion of the entity’s equity
securities trades should not be considered to contain a condition that is not a
market, performance, or service condition. Therefore, an entity would not
classify such an award as a liability if it otherwise qualifies as equity. The
amendments in this Update are effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2010. We expect
that the adoption of the amendments in this Update will not have any significant
impact on our financial position and results of operations.




In April
2010, the FASB issued ASU No. 2010-17—Revenue Recognition—Milestone Method
(Topic 605), which provide guidance on the criteria that should be met
for determining whether the milestone method of revenue recognition is
appropriate. A vendor can recognize consideration that is contingent upon
achievement of a milestone in its entirety as revenue in the period in which the
milestone is achieved only if the milestone meets all criteria to be considered
substantive. A milestone should be considered substantive in its entirety. An
individual milestone may not be bifurcated. The amendments in this Update are
effective on a prospective basis for milestones achieved in fiscal years, and
interim periods within those years, beginning on or after June 15, 2010. We
expect that the adoption of the amendments in this Update will not have any
significant impact on our financial position and results of
operations.




Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on our consolidated financial statements
upon adoption.




Critical
Accounting Policies and Estimates




The
following discussion and analysis is based upon our consolidated financial
statements, which have been prepared in conformity with US GAAP. Our significant
accounting policies are more fully described in the notes to the consolidated
financial statements attached hereto. However, certain accounting policies and
estimates are particularly important to the understanding of our financial
position and results of operations and require the application of significant
judgment by our management or can be materially affected by changes from period
to period in economic factors or conditions that are outside of the control of
management. As a result, they are subject to an inherent degree of uncertainty.
In applying these policies, our management uses its judgment to determine the
appropriate assumptions to be used in the determination of certain estimates.
Those estimates are based on our historical operations, our future business
plans and projected financial results, the terms of existing contracts, our
observance of trends in the industry, information provided by customers and
information available from other outside sources, as appropriate. The following
discusses significant accounting policies and estimates.


40




·
            Revenue
      recognition




Revenue
is recognized when the following four criteria are met as prescribed by the SEC
Staff Accounting Bulletin No. 104 (“SAB 104”): (i) persuasive evidence
of an arrangement exists, (ii) product delivery has occurred or the services
have been rendered, (iii) the fees are fixed or determinable, and
(iv) collectibility is reasonably assured.




Multiple-deliverable
arrangements




We derive
revenue from fixed-price sale contracts with customers that may provide for us
to deliver equipment with varied performance specifications specific to each
customer and provide the technical services for installation, integration and
testing of the equipment. In instances where the contract price is inclusive of
the technical services, the sale contracts include multiple deliverables. A
multiple-element arrangement is separated into more than one unit of accounting
if all of the following criteria are met:




·
            The
      delivered item(s) has value to the customer on a stand-alone
      basis;




·
            There
      is objective and reliable evidence of the fair value of the undelivered
      item(s); and




·
            If
      the arrangement includes a general right of return relative to the
      delivered item(s), delivery or performance of the undelivered item(s) is
      considered probable and substantially in the control of the
      Company.




Our
multiple-element contracts generally include customer-acceptance provisions
which provide for us to carry out installation, test runs and performance tests
at our cost until the equipment can meet the performance specifications within a
specified period (“acceptance period”) stated in the contracts. These contracts
generally provide the customers with the right to deduct certain percentages of
the contract value as compensation or liquidated damages from the balance
payment stipulated in the contracts, if the performance specifications cannot be
met within the acceptance period. There is generally no provision giving the
customers a right of return, cancellation or termination with respect to any
uninstalled equipment.




Our
delivered equipment has no standalone value to the customer until they are
installed, integrated and tested at the customer’s site by us in accordance with
the performance specifications specific to each customer. In addition, under
these multiple-element contracts, we have not sold the equipment separately from
the installation, integration and testing services, and hence there is no
objective and reliable evidence of the fair value for each deliverable included
in the arrangement. As a result, the equipment and the technical services for
installation, integration and testing of the equipment are considered a single
unit of accounting pursuant to ASC Subtopic 605-25, Revenue Recognition –
Multiple-Element Arrangements. In addition, the arrangement generally
includes customer acceptance criteria that cannot be tested before installation
and integration at the customer’s site.  Accordingly, revenue
recognition is deferred until customer acceptance, indicated by an acceptance
certificate signed off by customer.




We may
also provide our customers with a warranty for one year following the customer’s
acceptance of the installed equipment. Some contracts require that 5% to 15% of
the contract price be held as retainage for quality warranty and only due for
payment by the customer upon expiration of the warranty period. For those
contracts with retainage clauses, we defer the recognition of the amounts
retained as revenue until expiration of the warranty period when collectibility
can reasonably be assured. We have not provided for warranty costs for those
contracts without retainage clauses, as the relevant estimated costs were
insignificant based on historical experience.




Product
only




Revenue
derived from sales contracts that require delivery of products only is
recognized when the titles to the products pass to customers. Titles to the
products pass to the customers when the products are delivered and accepted by
the customers.


41




Software
sale




We
recognize revenue from the delivery of data processing platform software when
the software is delivered to and accepted by the customer, pursuant to ASC Topic
985, Software (formerly
Statement of Position, or SOP 97-2, Software Revenue Recognition,
as amended) and in accordance with SAB 104. Costs of software revenue include
amortization of software copyrights.




Service




We
recognize revenue from provision of services when the service has been
performed, in accordance with SAB 104.




We are
subject to business tax of 5% and value added tax of 17% on the revenues earned
for services provided and products sold in the PRC, respectively. We present our
revenue net of business tax and related surcharges and value added tax, as well
as discounts and returns. There were no product returns for the two years ended
March 31, 2010 and 2009.




·
            Deferred revenue and
      costs




Deferred
revenue represents payments received from customers on equipment delivery and
installation contracts prior to customer acceptance. As revenues are deferred,
the related costs of equipment paid to suppliers are also deferred. The deferred
revenue and costs are recognized in the consolidated statements of income in the
period in which the criteria for revenue recognition are satisfied as discussed
above.




·
            Income
    taxes




We
account for income taxes in accordance with FASB ASC Topic 740. ASC Topic 740
requires an asset and liability approach for financial accounting and reporting
for income taxes and allows recognition and measurement of deferred tax assets
based upon the likelihood of realization of tax benefits in future years. Under
the asset and liability approach, deferred taxes are provided for the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. A valuation allowance is provided for deferred tax assets if it is
more likely than not these items will either expire before we are able to
realize their benefits, or that future deductibility is uncertain.




In July
2006, the FASB issued ASC 740-10-25-5 through 740-10-25-7 and 740-10-25-13
(formerly FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes — An Interpretation of FASB Statement No. 109), which became
effective for fiscal year beginning after December 15, 2006. The interpretation
prescribes a recognition threshold and a measurement attribute for the financial
statement recognition and measurement of tax positions taken or expected to be
taken in a tax return. For those benefits to be recognized, a tax position must
be more-likely-than-not to be sustained upon examination by tax authorities. The
amount recognized is measured as the largest amount of benefit that is greater
than fifty percent likely of being realized upon ultimate settlement. Our
adoption of ASC 740-10-25-5 through 740-10-25-7 and 740-10-25-13 did not result
in any adjustments to the opening balance of our retained earnings as of April
1, 2008.




The
entities within our company file separate tax returns in the respective tax
jurisdictions in which they operate.




United
States




Our
holding company, LianDi Clean, is subject to taxes in the U.S.




British Virgin
Islands




China
LianDi, incorporated in the British Virgin Islands (“BVI”), is not subject to
any income tax in the BVI.


42




Hong
Kong




Under the
Inland Revenue Ordinance of Hong Kong, only profits arising in or derived from
Hong Kong are chargeable to Hong Kong profits tax, whereas the residence of a
taxpayer is not relevant. Therefore, Hua Shen HK, PEL HK and Bright Flow are
generally subject to Hong Kong income tax on its taxable income derived from the
trade or businesses carried out by them in Hong Kong at 16.5% for the years
ended March 31, 2010 and 2009.




PRC




In March
2007, the PRC government enacted the PRC Enterprise Income Tax Law (“New EIT
Law”), and promulgated related regulation, implementing regulations for the
PRC Enterprise Income Tax Law. The law and regulation became effective
January 1, 2008. The PRC Enterprise Income Tax Law, among other things,
imposes a unified income tax rate of 25% for both domestic and foreign invested
enterprises registered in the PRC.




Beijing
JianXin, being established in the PRC, is generally subject to PRC income tax.
Beijing JianXin has been recognized by the relevant PRC tax authority as a
software enterprise with its own software product and is entitled to tax
preferential treatment – a two year tax holiday through EIT exemption (from its
first profitable year) for the calendar years ended December 31, 2009 and 2010
and a 50% reduction on its EIT rate for the three ensuing calendar years ending
December 31, 2011, 2012 and 2013.




·
            Comprehensive
      income




FASB ASC
Topic 220 Comprehensive
Income establishes standards for reporting and displaying comprehensive
income and its components in the consolidated financial statements.
Comprehensive income and loss is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. Accumulated other comprehensive income arose from
foreign currency translation adjustments.




·
            Earnings per
      share




We report
earnings per share in accordance with the provisions of FASB ASC Topic 260,
“Earnings per Share.” FASB ASC Topic 260 requires presentation of basic and
diluted earnings per share in conjunction with the disclosure of the methodology
used in computing such earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common stockholders by
the weighted average common shares outstanding during the period. Diluted
earnings per share takes into account the potential dilutive effects of
convertible securities (using the as-if converted method, and options and
warrants and their equivalents (using the treasury stock method).




All per
share data including earnings per share has been retroactively restated to
reflect the reverse acquisition consummated on February 26, 2010, whereby the
27,354,480 shares of common stock issued by Remediation (nominal acquirer) to
our shareholders (nominal acquiree) are deemed to be the number of shares
outstanding for the periods prior to the reverse acquisition. For periods after
the reverse acquisition, the number of shares considered to be outstanding is
the actual number of shares outstanding during those periods.




The
following table is a reconciliation of the net income and the weighted average
shares used in the computation of basic and diluted earnings per share for the
periods presented:


43





Year ended March 31,2010
                        
                        
                        2009Income
      available to common stockholders for purposes of:Basic
                        
                        $
                        14,853,158
                        
                        
                        $
                        7,086,984Preferred
      stock dividend
                        
                        
                        184,820
                        
                        
                        
                        -Diluted
                        
                        
                        15,037,978
                        
                        
                        
                        7,086,984Weighted
      average number of shares:Basic
                        
                        
                        27,541,181
                        
                        
                        
                        27,354,480Effective
      of dilutive convertible preferred stock
                        
                        
                        660,073
                        
                        
                        
                        -Effect
      of dilutive warrants
                        
                        
                        29,083
                        
                        
                        
                        -Diluted
                        
                        
                        28,230,337
                        
                        
                        
                        27,354,480Earnings
      per shareBasic
                        
                        $
                        0.54
                        
                        
                        $
                        0.26Diluted
                        
                        $
                        0.53
                        
                        
                        $
                        0.26




·
            Foreign
      currency




We use
United States dollars (“U.S. Dollar” or “US$” or “$”) for financial reporting
purposes. Our subsidiaries maintain their books and records in their respective
functional currency, being the primary currency of the economic environment in
which their operations are conducted. Assets and liabilities of a subsidiary
with functional currency other than U.S. Dollars are translated into U.S.
Dollars using the applicable exchange rates prevailing at the balance sheet
date. Items on the statements of income and comprehensive income and cash flows
are translated at average exchange rates during the reporting period. Equity
accounts are translated at historical rates. Adjustments resulting from the
translation of our financial statements are recorded as accumulated other
comprehensive income.




Our PRC
subsidiary maintains its books and records in Renminbi (“RMB”), the lawful
currency in the PRC, which may not be freely convertible into foreign
currencies. The exchange rates used to translate amounts in RMB into U.S.
Dollars for the purposes of preparing the consolidated financial statements are
based on the rates as published on the website of People’s Bank of China and are
as follows:





March 31, 2010
                                
                                March 31, 2009Balance
      sheet items, except for equity accounts
                                
                                US$1=RMB6.8263
                                
                                US$1=RMB6.8359Items
      in statements of income and cash flows
                                
                                US$1=RMB6.8290
                                
                                US$1=RMB6.8670




No
representation is made that the RMB amounts could have been, or could be,
converted into US$ at the above rates.




The value
of RMB against US$ and other currencies may fluctuate and is affected by, among
other things, changes in China’s political and economic conditions. Any
significant revaluation of RMB may materially affect our financial condition in
terms of US$ reporting.




44




·
            Accounting treatment for
      Private Placement




On
February 26, 2010 and immediately following the Share Exchange, we completed the
Private Placement pursuant to a securities purchase agreement with the Investors
and sold 787,342 Units at a purchase price of $35 per Unit, consisting of, in
the aggregate, (a) 7,086,078 shares of Series A Preferred Stock convertible into
the same number of shares of common stock, (b) 787,342 Issued Common Shares, (c)
Series A Warrants to purchase up to 1,968,363 shares of common stock, at an
exercise price of $4.50 per share for a three-year period, and (d) Series B
Warrants to purchase up to 1,968,363 shares of common stock, at an exercise
price of $5.75 per share for a three-year period. We also issued to the
placement agent in the Private Placement (i) warrants to purchase 787,382 shares
of common stock at an exercise price of $3.50, (ii) Series A Warrants to
purchase 196,836 shares of common stock, and (iii) Series B Warrants to purchase
196,836 shares of common stock, which expire in three years on February 26,
2013. We received aggregate gross proceeds of approximately $27.56 million from
the Private Placement.




Share Transfer Arrangement
and Escrowed Shares Arrangement




In
consideration of the consulting services provided leading to the Private
Placement, on February 10, 2010, our major stockholders, SJ Asia Pacific Limited
and China LianDi Energy Resources Engineering Technology Ltd. (“LianDi Energy”),
an affiliate of Mr. Zuo, our CEO and Chairman, transferred 820,634 shares of
China LianDi to TriPoint Capital Advisors, LLC.




In
conjunction with the Private Placement, we also entered into a make good escrow
agreement with the Investors (the “Securities Escrow Agreement”), pursuant to
which China LianDi Energy Resources Engineering Technology Ltd. (“LianDi
Energy”), an affiliate of Mr. Zuo, CEO and Chairman of our company, delivered
into an escrow account 1,722,311 shares of common stock (the “Escrow Shares”) to
be used as a share escrow for the achievement of a Fiscal Year 2011 net income
performance threshold of $20.5 million. With respect to the 2011 performance
year, if we achieve less than 95% of the 2011 performance threshold, then the
Escrow Shares for such year will be delivered to the Investors in the amount of
86,115.55 shares (rounded up to the nearest whole share and pro rata based on
the number of shares of Series A Preferred Stock owned by such Investor at such
date) for each full percentage point by which such threshold was not achieved up
to a maximum of 1,722,311 shares. Any Escrow Shares not delivered to any
Investor because such Investor no longer holds shares of Series A Preferred
Stock or Conversion Shares, or because the 2011 performance threshold was met,
shall be returned to the Principal Stockholder.




For the
purposes of the Securities Escrow Agreement, net income is defined in accordance
with US GAAP and reported by us in the audited financial statements for fiscal
year ended 2011; provided, however, that net income for fiscal year ended 2011
shall be increased by any non-cash charges incurred (i) as a result of the
Private Placement, including without limitation, as a result of the issuance
and/or conversion of the Series A Preferred Stock, and the issuance and/or
exercise of the Warrants, (ii) as a result of the release of the Escrow Shares
to the Principal Stockholder and/or the Investors, as applicable, pursuant to
the terms of the Securities Escrow Agreement, (iii) as a result of the issuance
of ordinary shares of the Principal Stockholder to its PRC shareholders, upon
the exercise of options granted to such PRC shareholders by the Principal
Stockholder, as of the date of the Securities Escrow Agreement, (iv) as a result
of the issuance of Warrants to any placement agent and its designees in
connection with the Private Placement, (v) the exercise of any Warrants to
purchase common stock outstanding and (vi) the issuance under any performance
based equity incentive plan that we adopt. Net income will also be increased to
adjust for any cash or non-cash charges resulting from the payment of dividends
on the Series A Preferred Stock in connection with the Private
Placement.




We have
evaluated the circumstances under which our major stockholders transferred
820,634 shares of  China LianDi to the consultant, and concluded that
the share transfer arrangement was entered into for consulting services
related  to facilitating  the Private Placement. We have
also evaluated the terms of the Securities Escrow Agreement based on the
guidance provided in ASC 718-10-S99. We concluded that because the Escrow Shares
would be released to our principal stockholder or distributed to the investors
without regard to the continued employment of any of our directors of officers,
the Securities Escrow Agreement is in substance an inducement to facilitate the
Private Placement, rather than as compensatory. As such, we have accounted for
the share transfer arrangement with the consultant and the escrowed share
arrangement under the Securities Escrow Agreement according to their nature and
reflected them as a reduction of the proceeds allocated to the newly issued
securities in the Private Placement, based on the aggregate fair value of
820,634 shares and 1,722,311 shares of our common stock at February 26, 2010,
respectively.




Allocation of Proceeds in
the Private Placement




In
accordance with the guidance provided in ASC 470-20-30, we have first allocated
the proceeds from the Private Placement between the Issued Common Shares, the
Series A Preferred Stock and the Warrants issued in the Private Placement
proportionately based on their estimated fair values as of the Closing Date of
the Private Placement.  Then the guidance provided in ASC 470-20-30-5
has been applied to the amount allocated to the Series A Preferred Stock, and
the effective conversion price has been used, to measure the intrinsic value, if
any, of the embedded conversion option.


45




Our
common stock was not publicly traded before and as of the Closing Date of the
Private Placement. We have determined that its common stock had a fair value of
$2.86 per share at February 26, 2010 based on a retrospective valuation. The
valuation has been prepared consistent with the methods outlined in the American
Institute of Certified Public Accountants Practice Aids, “Valuation of
Privately-Held Company Equity Securities Issued as Compensation” and based on
the market approach using the Guideline Publicly Trade Company (“GPTC”)
method.  Under the GPTC method, we applied the (i) price-to-earnings
before interest, taxes, depreciation and amortization (“EBITDA”); (ii)
price-to-earnings before interest and taxes (“EBIT”); and (iii) price-to-net
assets multiples of six comparable public entities generated from the financial
figures from trailing 12 months preceding February 26, 2010, to our company,
subjected to a discount to adjust for the lack of marketability of our common
stock.




The
intrinsic value of the embedded conversion feature has been calculated by
comparing the effective conversion price determined based on the proceeds from
the Private Placement allocated to the Series A Preferred Stock, and the fair
value of our common stock at the commitment date. The effective conversion price
of the Series A Preferred Stock was determined to be higher than the fair value
of the common stock at February 26, 2010. Accordingly, the embedded conversion
feature did not have an intrinsic value at February 26, 2010.





The fair
values of the Warrants were determined using the binomial option pricing model
with the following assumptions:





Expected
      term (years):
                  
                  3Dividend
      yield:
                  
                  0.00%Expected
      volatility:
                  
                  56.07%Risk-free
      interest rate:
                  
                  1.323%




As our
stock was not publicly traded, historical volatility information is not
available. In accordance with the guidance in ASC 718-10-30-2, we identified six
similar public entities for which share and option price information was
available, and considered the historical volatilities of those public entities’
share prices in calculating the expected volatility appropriate to our company
(the calculated value).




The
risk-free rate of return reflects the interest rate for United States Treasury
Note with similar time-to-maturity to that of the Warrants.




The
following table sets out the allocation of the proceeds from the Private
Placement:





Cash
      proceeds of the Private Placement (net of fees and
    expenses)
                      
                      $
                      24,552,378Reduction
      for share transfer arrangement and escrowed share
    arrangement
                      
                      
                      (7,272,824
                      )Net
      proceeds allocated to securities issued in the Private
      Placement
                      
                      $
                      17,279,554Allocated
      to:Issued
      Common Shares
                      
                      $
                      1,309,380Series
      A Preferred Stock
                      
                      
                      14,059,018Warrants
                      
                      
                      1,911,156$
                      17,279,554




Preferred
Stock




The Board
of Directors of our Company is authorized, without further action by the
shareholders, to issue, from time to time, up to 25,000,000 shares of preferred
stock in one or more classes or series. Similarly, the Board is authorized to
fix or alter the designations, powers, preferences, and the number of shares
which constitute each such class or series of preferred stock. Such
designations, powers or preferences may include, without limitation, dividend
rights (and whether dividends are cumulative), conversion rights, if any, voting
rights (including the number of votes, if any, per share), redemption rights
(including sinking fund provisions, if any), and liquidation preferences of any
unissued shares or wholly unissued series of preferred stock.


46




We have
designated one series of preferred stock as the Series A Preferred Stock, of
which we issued 7,086,078 shares upon the closing of the Private Placement
described above, all of which remained issued and outstanding as of March 31,
2010. The following are the principal terms of the Series A Preferred
Stock:




Rank.The Series A Preferred
Stock ranks senior to our common stock, but junior to all indebtedness of our
company.




Dividend.Holders of the
Series A Preferred Stock are entitled to a cumulative dividend at an annual rate
of 8%, payable quarterly, at our option, in cash or in additional shares of
Series A Preferred Stock.




Voting Rights.The Series A
Preferred Stock has class voting rights such that we, prior to taking certain
corporate actions (including certain issuances or redemptions of its securities
or changes in its organizational documents), are required to obtain the
affirmative vote or consent of the holders of a majority of the shares of the
Series A Preferred Stock then issued and outstanding. The Series A Preferred
Stock has no other voting rights with the common stock or other equity
securities of our company.




Liquidation Preference. The
Series A Preferred Stock has a preference over our common stock on our
liquidation, dissolution or winding up equal to $3.50 per share of the Series A
Preferred Stock plus any accrued but unpaid dividends thereon, whether or not
declared, together with any other dividends declared but unpaid thereon, as of
the date of liquidation (collectively, the “Series A Liquidation Preference
Amount”).




Voluntary Conversion. The
Series A Preferred Stock is convertible at any time after issuance, at the
option of the holder, into a number of shares of our common stock equal to the
quotient of (i) the Series A Liquidation Preference Amount of the shares of the
Series A Preferred Stock dividend by (ii) the conversion price.




Mandatory Conversion. The
Series A Preferred Stock automatically converts into shares of our common stock
at the then applicable conversion ratio, at the earlier to occur of the
following: (i) the twenty-four (24) month anniversary of the Closing Date, and
(ii) such time that the volume weighted average price of our common stock is no
less than $5.00 for a period of ten (10) consecutive trading days with the daily
volume of the common stock equal to at least 50,000 shares per day.




Conversion Price. The
conversion price is $3.50 subject to adjustments as follows:




(i)
            customary
      adjustment for corporate events such as stock splits and combination,
      dividends and distribution, reclassification, exchange or substitution,
      reorganization, merger, consolidation or sale of assets,
    and




(ii)
            anti-dilution
      adjustment for a period of 12 months following the effective date of the
      registration statement filed under the Registration Rights Agreement. In
      the event that we issue or sell any additional shares of common stock at a
      price per share less than the then-applicable conversion price or without
      consideration, then the conversion price upon each such issuance shall be
      reduced to that price (rounded to the nearest cent) determined by
      multiplying the conversion price by a fraction: (1) the numerator of which
      shall be equal to the sum of (A) the number of shares of common stock
      outstanding immediately prior to the issuance of such additional shares of
      common stock plus (B) the number of shares of common stock (rounded to the
      nearest whole share) which the aggregate consideration for the total
      number of such additional shares of common stock so issued would purchase
      at a price per share equal to the outstanding conversion price in effect
      immediately prior to such issuance; and (2) the denominator of which shall
      be equal to the number of shares of outstanding common stock immediately
      after the issuance of such additional shares of common stock. However, we
      are not required to make any adjustment to the conversion price upon
      securities issued in connection with: a bona fide acquisition of business;
      the exercise of warrants issued in the Private Placement; bona fide
      strategic license agreement or other partnering arrangements; grant of
      options to purchase common stock at no less than the then-applicable fair
      market value under equity incentive plans; any engagement letter or
      consulting agreement at no less than the then-applicable fair market value
      to advisors or consultants; reasonable commercial credit arrangements,
      equipment financings or similar transactions to financial institutions or
      lessors, or similar commercial situations to vendors or customers or to
      other persons; any
recapitalization.


47




Inability to Fully Convert.
If we cannot issue shares of common stock registered for resale under the
Registration Statement for any reasons, holders of the Series A Preferred Stock,
solely at the holder’s option, can require us to redeem from such holder those
Series A Preferred Stock for which we are unable to issue registered shares of
common stock at a price equal the Series A Liquidation Preference Amount
(“Mandatory Redemption”), provided that we shall have the sole option to pay the
Mandatory Redemption Price in cash or shares of common stock.




Accounting
for Series A Preferred Stock




We have
evaluated the terms of the Series A Preferred Stock and determined that the
Series A Preferred Stock, without embodying an obligation for us to repurchase
or to settle by transferring assets, is not a liability in accordance with the
guidance provided in ASC Topic 480, Distinguishing Liabilities from
Equity.




Because
the event that may trigger redemption of the Series A Preferred Stock (the
delivery of registered shares), is not solely within our control, the Series A
Preferred Stock has been classified as mezzanine equity (out of permanent
equity) in accordance with the requirements of ASC 480-10-S99.




As of
March 31, 2010, we have not adjusted the carrying value of the Series A
Preferred Stock to its redemption value or recognized any accretion charges as
it is considered not probable that the Series A Preferred Stock will become
redeemable, in accordance with the requirements of SEC Staff Guidance on
redeemable preferred stock in ASC 480-10-S99.




Common
Stock Purchase Warrants




Series
A Warrants




As of
March 31, 2010, we had outstanding Series A Warrants to purchase up to 1,968,363
shares of common stock. The Series A Warrants:




(a)
            entitle
      the holder to purchase that number of Series A Warrant Shares as is equal
      to 25% of the aggregate number of shares of common stock included in the
      Units and underlying the Series A Preferred Stock purchased by such
      holder;




(b)
            are
      exercisable at any time for three years from February 26, 2010, the
      Closing Date of the Private
Placement;




(c)
            are
      exercisable, in whole or in part, at the Series A Warrant exercise price
      of $4.50 per share, subject to adjustment upon the occurrence of certain
      events, including recapitalizations or consolidations, combinations of our
      common stock;




(d)
            may
      be exercised only for cash (except that there will be a cashless exercise
      option at any time during which a registration statement covering such
      shares is not effective); and




(e)
            are
      callable by us following the date that the common stock equals or exceeds
      $9.00 for 15 consecutive trading days and the average daily trading volume
      of the common stock exceeds 75,000 shares for 15 consecutive trading days
      at a price equal to $0.001 per called Series A Warrant
    Share.




Series
B Warrants




As of
March 31, 2010, we had outstanding Series B Warrants to purchase up to 1,968,363
shares of common stock.  The Series B Warrants:


48




(a)
            entitle
      the holder to purchase that number of Series B Warrant Shares as is equal
      to 25% of the aggregate number of shares of common stock included in the
      Units and underlying the Series A Preferred Stock purchased by such
      holder;




(b)
            are
      exercisable at any time for three years from February 26, 2010, the
      Closing Date of the Private
Placement;




(c)
            are
      exercisable, in whole or in part, at the Series B Warrant exercise price
      of $5.75 per share, subject to adjustment upon the occurrence of certain
      events, including recapitalizations or consolidations, combinations of our
      common stock;




(d)
            may
      be exercised only for cash (except that there will be a cashless exercise
      option at any time during which a registration statement covering such
      shares is not effective); and




(e)
            are
      callable by us following the date that the common stock equals or exceeds
      $11.50 for 15 consecutive trading days and the average daily trading
      volume of the common stock exceeds 75,000 shares for 15 consecutive
      trading days at a price equal to $0.001 per called Series B Warrant
      Share.




Placement
Agent Warrants




As of
March 31, 2010, in
addition to the above Series A and B Warrants issued to the investors,we
had outstanding (i) warrants to purchase 787,342 shares of common stock at an
exercise price of $3.50, (ii) Series A Warrants to purchase 196,836 shares of
common stock, and (iii) Series B Warrants to purchase 196,836 shares of common
stock, which were issued to the placement agent in connection with the Private
Placement and expire in three years on February 26, 2013.




We have
evaluated the terms of the warrants issued in the Private Placement with
reference to the guidance provided in ASC 815-40-15. We have concluded that
these warrants are indexed to our own stock, because the warrants have no
contingent exercise provision and have fixed strike prices which are only
subject to adjustments in the event of stock split, combinations, dividends,
mergers or other customary corporate events. Therefore, these warrants have been
classified as equity.




A.
            Results
      of Operations for the years ended March 31, 2010 and
  2009




The
following table sets forth a summary, for the periods indicated, of our
consolidated results of operations. Our historical results presented below are
not necessarily indicative of the results that may be expected for any future
period. All amounts are presented in US$.





For the year ended March 31,2010
                
                
                2009NET
      REVENUESales
      and installation of equipment
                
                $
                71,152,658
                
                
                $
                25,952,152Sales
      of software
                
                
                6,433,064
                
                
                
                4,791,901Services
                
                
                133,758
                
                
                
                521,23277,719,480
                
                
                
                31,265,285Cost
      of revenueCost
      of equipment sold
                
                
                (58,540,656
                )
                
                
                (21,206,730
                )Amortization
      of intangibles
                
                
                (597,449
                )
                
                
                (198,049
                )(59,138,105
                )
                
                
                (21,404,779
                )Gross
      profit
                
                
                18,581,375
                
                
                
                9,860,506Operating
      expenses:Selling
                
                
                (1,673,019
                )
                
                
                (1,228,481
                )General
      and administrative
                
                
                (1,304,006
                )
                
                
                (1,177,820
                )Research
      and development
                
                
                (91,401
                )
                
                
                (42,158
                )


49





For the year ended March 31,2010
                                                
                                                
                                                2009Total
      operating expenses
                                                
                                                
                                                (3,068,426
                                                )
                                                
                                                
                                                (2,448,459
                                                )Income
      from operations
                                                
                                                
                                                15,512,949
                                                
                                                
                                                
                                                7,412,047Other
      income (expenses), netInterest
      income
                                                
                                                
                                                48,864
                                                
                                                
                                                
                                                48,390Interest
      and bank charges
                                                
                                                
                                                (519,969
                                                )
                                                
                                                
                                                (366,232
                                                )Merger
      expenses
                                                
                                                
                                                (275,000
                                                )
                                                
                                                
                                                -Exchange
      gains (losses), net
                                                
                                                
                                                (293,993
                                                )
                                                
                                                
                                                37,695Value
      added tax refund
                                                
                                                
                                                465,786
                                                
                                                
                                                
                                                -Other
                                                
                                                
                                                100,157
                                                
                                                
                                                
                                                (3,196
                                                )Total
      other expenses, net
                                                
                                                
                                                (474,155
                                                )
                                                
                                                
                                                (283,343
                                                )Income
      before income tax
                                                
                                                
                                                15,038,794
                                                
                                                
                                                
                                                7,128,704Income
      tax expense
                                                
                                                
                                                (816
                                                )
                                                
                                                
                                                (41,720
                                                )NET
      INCOME
                                                
                                                
                                                15,037,978
                                                
                                                
                                                
                                                7,086,984Preferred
      stock dividend
                                                
                                                
                                                (184,820
                                                )
                                                
                                                
                                                -NET
      INCOME AVAILABLE TO COMMON STOCKHOLDERS
                                                
                                                $
                                                14,853,158
                                                
                                                
                                                $
                                                7,086,984COMPREHENSIVE
      INCOME:Net
      income
                                                
                                                
                                                15,037,978
                                                
                                                
                                                
                                                7,086,984Other
      comprehensive income:Foreign
      currency translation adjustment
                                                
                                                
                                                9,469
                                                
                                                
                                                
                                                43,119Comprehensive
      income
                                                
                                                
                                                15,047,447
                                                
                                                
                                                
                                                7,130,103EARNINGS
      PER SHARE:Basic
                                                
                                                $
                                                0.54
                                                
                                                
                                                $
                                                0.26Diluted
                                                
                                                $
                                                0.53
                                                
                                                
                                                $
                                                0.26Weighted
      average number of shares outstanding:Basic
                                                
                                                
                                                27,541,181
                                                
                                                
                                                
                                                27,354,480Diluted
                                                
                                                
                                                28,230,337
                                                
                                                
                                                
                                                27,354,480




Net
Revenue:




Net
revenue represents our gross revenue net of business tax, value added tax and
related surcharges as well as discounts and returns.  There were no
material discounts and returns for the years ended March 31, 2010 and
2009.




The
following tables set out the analysis of our net revenue:






Year ended March 31,2010
                      
                      
                      2009US$ M
                      
                      
                      US$ MSales
      and installation of equipment
                      
                      
                      71.15
                      
                      
                      
                      25.95Sales
      of software
                      
                      
                      6.43
                      
                      
                      
                      4.79Services
                      
                      
                      0.14
                      
                      
                      
                      0.5277.72
                      
                      
                      
                      31.26
  50




We
generated our revenue from delivery of equipment with the related technical
engineering services (including but not limited to installation, integration and
system testing), and sales of our optimization software. Generally, sales of
equipment, the related technical services and the optimization software are
included in one agreement as a total solution package. However, in some cases,
customers sign agreements with us to purchase equipment, software products or
consultancy services individually. Under the total solution agreements, we have
neither objective nor reliable evidence for us to separate our total revenue
amount into separate categories. Therefore, the revenue amount indicated as
sales of software and technical consultancy services in the above
tables was calculated based on the total revenue amount of individual
agreements.




Our total
net revenue increased significantly to US$77.7 million for the year ended March
31, 2010 from US$31.3 million for the year ended March 31, 2009. This was mainly
due to the significant increase of the distribution and service contracts we
signed with our customers and the successful and timely implementation of our
contracts. These achievements were mainly a result of our successful
establishment of an experienced sales and implementation team. As a result, we
have earned a good reputation among our customers. For the year ended March 31,
2010, we completed 56 projects related to sales and installation of equipment as
compared to 38 projects related to sales and installation of equipment for the
year ended March 31, 2009. During the year ended March 31, 2010, one of these
completed projects had a contract value greater than $13 million, one had a
contract value greater than $6 million, three had contract values of more than
$4 million, six projects had contract values over $2 million and five projects
had contract values greater than $1 million.  For the same period of
2009, only one of these completed projects had a contract value of more than $5
million, one had a contract value of more than $3 million and 5 projects had
contract values greater than $1 million.




For the
years ended March 31, 2010 and 2009, we also sold 73 sets and 55 sets of data
processing software, respectively.




As of March 31, 2010 and
2009, we had 7 and 23 uncompleted contracts, respectively, with total contract
amounts of approximately US$13 million and US$35.8 million,
respectively.  In addition, we have signed 8 new contracts with total
contract amounts of approximately US$18.3 million after March 31,
2010.  We have served the Chinese petroleum and petrochemical
industries since 2004 through our four operating subsidiaries. We worked for
approximately one year to establish relationships with international industrial
equipment manufacturers, such as Cameron, DeltaValve and Poyam
Valves.  We also analyzed the domestic market and the local customers’
needs. As a result, we are one of the few domestic companies able to provide
localized services for international companies lacking local offices in China.
This process also allowed us to meet the high standards and requirements set by
our customers, the major petroleum and petrochemical companies in China, and to
become an approved vendor. Along with the rapid growth of the petroleum and
petrochemical industries and the rapid growth of the fixed assets investments
within these industries, we successfully increased the size and scope of
projects performed for our customers from the second half of our fiscal year
2009 and in our fiscal year 2010. With the successful implementation of our
contracts, we were able to recognize revenue once the products were delivered
and the related engineering services were accepted by our
customers.




The
revenue amount we received from our customers on delivery and installation
contracts prior to the completion of related technical services and the delivery
of acceptance certificates was recorded as deferred revenue. As of the years
ended March 31, 2010 and 2009, approximately US$2.5 million and US$18.9 million
were recorded as deferred revenue, respectively. Accordingly, the related
equipment purchase costs that actually occurred for these uncompleted projects
(for each reporting period) were recorded as deferred cost of
revenue.  As of the years ended March 31, 2010 and 2009, we had
recorded approximately US$1.2 million and US$15.1 million as deferred costs,
respectively.  We track and record the deferred revenue and deferred
cost of revenue on a project basis.  The deferred revenue and deferred
cost will be recognized as revenue and cost of revenue with the completion of
the related technical services and receipt of an acceptance certificate from our
customers on a matching basis. Therefore, there will be no significant impact of
deferred revenue and deferred cost on future gross margins. The gross margin of
each reporting period reflects the actual gross profitability of contracts
completed in each reporting period.




Cost
of sales:




Cost of
sales consist of the equipment purchase cost recognized in-line with the
contract revenue, which is recognized in each reporting period, and the
amortization amount of our software copyright. Our total cost of sales increased
significantly to US$59.1 million for the year ended March 31, 2010 from US$21.4
million for the year ended March 31, 2009.  This increase is in-line
with the increases in our total net revenue recognized in each reporting
period.




51




Gross
margin:




Year ended March 31,2010
                        
                        
                        2009US$ M
                        
                        
                        US$ MNet
      Revenue
                        
                        
                        77.72
                        
                        
                        
                        31.26Cost
      of sales
                        
                        
                        59.14
                        
                        
                        
                        21.40Gross
      margin
                        
                        
                        18.58
                        
                        
                        
                        9.86Overall
      gross margin (%)
                        
                        
                        24
                        %
                        
                        
                        32
                        %




The level
of our overall gross margin was affected by the relative percentage of our
separate software sales volume for each reporting period. As of the years ended
March 31, 2010 and 2009, there were no software sales being included in the
total solution agreement with our customers. The cost of our software sales
consisted of the amortization of our purchased software copyright during each
reporting period. Other direct installation and testing costs related to the
software sales was insignificant based on our historical experience, and we did
not separate these software related expenses from our total expenses in the
normal course of business.




Our
overall gross margin decreased to 24% for the year ended March 31, 2010 as
compared to 32% overall gross margin we achieved for the year ended March 31,
2009.  This was mainly due to the following reasons: (1) the
percentage of the separate software sales (which we believe have a general gross
margin of about 85%-95%) over the total revenue of the corresponding period
decreased to 8% for the year ended March 31, 2010 from 15% for the same period
of 2009, as a result of the significant increase of our equipment delivery and
installation contracts (which we believe have a general gross margin of about
15%-23%) executed and completed for the year ended March 31, 2010; and (2) our
software copyright was purchased in December 2008, the amortization amount
recorded for the year ended March 31, 2009 was only for 4 months which led a
higher software gross margin of 96% for the period, as compared to amortization
expenses for 12 months recorded and a relative lower software gross margin of
91% achieved for the year ended March 31, 2010.




We
believe that our overall gross margin is typically between 25%-35%. Typically,
our gross margin reflects the actual gross profitability of the contracts that
we completed in each reporting period with all revenue and cost of revenue being
recognized on a matching basis in the same reporting
period.  Generally, the factors that normally affect our gross margin
in each reporting period include (1) the percentage of the software sales for
each period; and (2) if we completed any larger revenue contracts that
had  lower gross margin as compared to other contracts in the
reporting period.  Normally, the relatively lower gross margin
contracts were signed as a result of a more intense commercial competition for
certain  individual contracts.  As of March 31, 2010, we do
not have any material uncompleted contract signed with gross margin below our
average gross margin.  Therefore, we believe that these existing
uncompleted contracts will not have an adverse impact on our future gross
margin. We will continue to monitor and review our sales contracts to determine
if there will be any adverse impact on our gross margin in future reporting
periods.




Operating
expense




Our
operating expenses include: selling expenses, general and administrative
expenses and research and development expenses.




The
following tables set forth the analysis of our operating expenses:




Year ended March 31,2010
                      
                      
                      2009US$ M
                      
                      
                      US$ M% of
                      
                      
                      
                      
                      
                      % ofRevenue
                      
                      
                      
                      
                      
                      RevenueNet
      revenue
                      
                      
                      77.7
                      
                      
                      
                      100
                      %
                      
                      
                      31.26
                      
                      
                      
                      100
                      %–
      Selling expenses
                      
                      
                      1.67
                      
                      
                      
                      2
                      %
                      
                      
                      1.23
                      
                      
                      
                      4
                      %–
      G&A expenses
                      
                      
                      1.31
                      
                      
                      
                      2
                      %
                      
                      
                      1.18
                      
                      
                      
                      4
                      %–
      R&D expenses
                      
                      
                      0.09
                      
                      
                      
                      0.1
                      %
                      
                      
                      0.04
                      
                      
                      
                      0.1
                      %Total
      Operating expenses
                      
                      
                      3.07
                      
                      
                      
                      4
                      %
                      
                      
                      2.45
                      
                      
                      
                      8
                      %




52


Selling
expenses:




Our
selling expenses increased to US$1.67 million for the year ended March 31, 2010
from US$1.23 million for the year ended March 31, 2009. Our selling expenses
mainly include freight, marketing research expenses, salary expenses and
traveling expenses.




For the
years ended March 31, 2010 and 2009, the increase in selling expenses was mainly
due to (1) freight charge increase of approximately $0.13 million due to more
shipments occurring in line with the increase of the projects executed for the
year ended March 31, 2010; (2) increased marketing expenses of approximately
$0.26 million as we continued our efforts in marketing research and development;
and (3) a $0.05 million increase of salary and bonus due to an increase of our
sales force in order to meet the rapid increase of our revenue
scale.




The
percentage of our total selling expenses over the relative total net revenue for
the corresponding period decreased to 2% for the year ended March 31, 2010 from
4% for the same period of 2009. This is mainly due to the significant increase
of our net revenue for the year ended March 31, 2010 as compared with that of
our last fiscal year.  In addition, we believe that the percentage of
our total selling expenses over the total net revenue for the corresponding
period for each reporting period may not stable because our average total
solution business cycle is normally from six months to twelve months, and a
significant portion of our sales activities (including but not limited to
attending bidding invitation meetings, providing customers surveys and analysis,
presenting proposals to customers, and finalizing total solution packages with
customers) were performed before the contracts were signed, in accordance with
the prudence principles set by US GAAP. Our expenses for the “pre-contract”
stage were expensed and recorded in earnings when they
occurred.  Therefore, the amount of “pre-contract” expenses directly
relate to the number of contracts we participated in during each reporting
period, but not to the corresponding contract revenue being
recognized.




General and administrative
expenses:




Our
general and administrative expenses increased to US$1.31 million for the year
ended March 31, 2010 from US$1.18 million for the year ended March 31, 2009. Our
general and administrative expenses mainly include: (1) salary and benefits for
management and administrative departments (finance, importation, human resources
and administration); (2) office rental and other administrative supplies; (3)
management’s traveling expenses; (4) general communication and entertainment
expenses; and (5) professional service charges (such as valuations and audits).
We expect that our general and administrative expenses will increase in future
periods as we hire additional personnel and incur additional costs in connection
with the expansion of our business. We also expect to incur increased
professional services costs in the future in connection with disclosure
requirements under applicable securities laws, and our efforts to continue to
improve our internal control systems in-line with the expansion of our
business.




For the
years ended March 31, 2010 and 2009, our general and administrative expenses
increased due to the following reasons: (1) a US$0.02 million increase of rental
expenses associated with a new office rented in October 2008; (2) a US$0.03
million increase in traveling and automation expenses related to management’s
efforts to expand the business and general administration; and (3) a US$0.08
million increase in professional services changes. The percentage of our total
general and administrative expenses relative to total net revenue of the
corresponding period decreased to 2% from 4% for the previous reporting period,
due to a significant increase of projects getting completed with revenue being
recognized for the year ended December 31, 2010 compared with the same period of
2009 as discussed above.




Research and development
expenses:




Research
and development expenses represent the salary expenses and other related
expenses of our Research and Development department. Our research and
development expenses increased to US$0.09 million for the year ended March 31,
2010 compared with US$0.04 million for the year ended March 31, 2009 due to an
increase of the technical staff to meet our R&D needs.  We expect
our research and development expenses to increase in the future as we plan to
hire additional R&D personnel to strengthen the functionality of our current
software products and develop additional competitive industrial software
products.


53




Operating
profits




As a
result of the foregoing, our operating profit increased significantly to US$15.5
million for the year ended March 31, 2010 from US$7.4 million for the year ended
March 31, 2009.




Other
income and expenses




Our other
income and expenses mainly include interest income, interest expenses, bank
charges, exchange gains or losses, value added tax refund, other income and
expenses and merger expenses related to the reverse acquisition transaction
consummated on February 26, 2010.




Interest income, interest
expenses and bank charges:




Interest
income represents the interest income we earned from cash
deposits.  Interest expenses relate to the working capital loans we
borrowed from our Japanese shareholder (annual interest rate of 3% to 5%) which
were mostly short-term loans with effective credit periods from three to six
months. Bank charges represent the handling charges for issuance of letters of
credit and other bank transactions. The bank handling charges for the year ended
March 31, 2010 increased approximately US$0.18 million compared with the same
period of 2009, which was mainly due to the significant increase of the contract
amounts settled with our customers for the year ended March 31, 2010 as compared
to the same period of 2009.




Merger
expenses




Merger
expenses related to the amount we paid to our former principal shareholder,
owner of the cancelled 4,690,000 shares, as a result of the Share Exchange
having been consummated.




Exchange gains or
losses:




Exchange
gains or losses were considered relatively significant for the year ended March
31, 2010 as compared with the same period of 2009, which was mainly due to the
following transactions: (1) our Hong Kong subsidiary Hua Shen HK (which keeps
its bank deposits in US dollars during its normal course of business) borrowed
pursuant to a shareholder loan which was approximately JPY500 million from our
Japanese shareholder in June 2009. We recognized approximately US$0.2 million
exchange loss due to the devaluation of the US dollar against the Japanese Yuan
for the year ended March 31, 2010; and (2) we had important contracts signed by
our subsidiary Hua Shen HK (using functional currency US$) with our
international suppliers in Euro. We recognized an approximate US$0.1 million
exchange loss due to the devaluation of the US$ against the Euro. Management
believes that further fluctuation of these currencies will have an impact on
both our operating results and financial positions.




Value added tax
refund




Our PRC
subsidiary, Beijing JianXin, has been recognized by the PRC government as a
software enterprise with its own software copyright.  The standard
value added tax rate for sales of products of PRC enterprises is
17%.  Under the PRC government’s preferential policies for software
enterprises, Beijing JianXin is entitled to a refund of 14% value added tax in
respect to sales of self-developed software products. We pay 17% value added tax
for our software sales and the tax authorities will refund us 14% of the value
added tax that we pay within about 2 months.  This refund is regarded
as a subsidy income granted by the PRC government and we recognize the value
added tax refund as other income and only when it has been received. There is no
condition to the use of the refund received.  We received
approximately US$0.47 million of value added tax refund for the year ended March
31, 2010.  So long as the PRC government’s preferential policies for
software enterprises remain unchanged, Beijing JianXin will continue to be
eligible for this refund.  As our software sales are not considered a
significant source for our revenue contribution, this refund will not have any
significant impact on our future operations.


54




Income
before income tax




As a
result of the foregoing, our income before income tax increased significantly to
US$15.0 million for the year ended March 31, 2010 from US$7.1 million for the
year ended March 31, 2009.




Income
tax expenses




The
entities within our company file separate tax returns in the respective tax
jurisdictions in which they operate.




As a
holding company incorporated in the U.S., we are subject to the income tax in
the U.S. Our subsidiary, China Liandi, which was incorporated in the British
Virgin Islands (“BVI”), is not subject to any income tax in the
BVI.  Under the Inland Revenue Ordinance of Hong Kong, only profits
arising in or derived from Hong Kong are chargeable to Hong Kong profits tax,
whereas the residence of a taxpayer is not relevant. Therefore, our Hong Kong
subsidiaries, Hua Shen HK, PEL HK and Bright Flow, are generally subject to
Hong Kong income tax on its taxable income derived from the trade or businesses
carried out by them in Hong Kong at 16.5% for the year ended March 31, 2010 and
2009.




Our PRC
subsidiary, Beijing JianXin, is generally subject to PRC enterprise income tax
(“EIT”). However, it has been recognized by the relevant PRC tax authority as a
software enterprise with its own software copyright and is entitled to
preferential tax treatment – a tax holiday for two-year EIT exemption from its
first profitable year (calendar year 2009) and a 50% reduction on its EIT rate
for the three ensuing years.




Net
income




As a
result of the foregoing, our net income increased significantly to US$15.0
million for the year ended March 31, 2010 from US$7.1 million for the year ended
March 31, 2009.




Preferred
stock dividend




In
accordance with the securities purchase agreement we entered into with our
investors on February 26, 2010, the holders of the Series A Preferred Stock are
entitled to a cumulative dividend at an annual rate of 8%. The amount of the
preferred stock dividend we accrued for the year ended March 31, 2010 was
calculated by US$3.5 per share times the number of shares of Series A Preferred
Stock outstanding as of March 31, 2010 for the period from February 26, 2010
through March 31, 2010, as no preferred stock was converted into our common
stock during this period.




B.
            Liquidity
      and capital resources




Cash and
cash equivalents consist of all cash balances and highly liquid investments with
an original maturity of three months or less. Restricted cash is excluded from
cash and cash equivalents. As of the years ended March 31, 2010 and 2009, we had
cash and cash equivalents of US$59.2 million and US$5.0 million,
respectively.




Our
liquidity needs include: (i) net cash used in operating activities, which
consists of: (a) cash required to import the equipment to be distributed to our
customers, and (b) related freight expenses needed to be borne by our
company; and (ii) our general working capital needs, which include payment
for staff salary and benefits, payment for office rent and other administrative
supplies, and net cash used in investing activities that consist of the
investments in computers and other office equipment. Before the year ended March
31 2009, we financed our liquidity needs primarily through working capital loans
obtained from our shareholders. Along with the significant increase of the scope
and size of the delivery and installation contracts we obtained, the successful
execution of these contacts, and the timely collection of the related account
receivables, we generated a positive net cash flow from our operating activities
of approximately US$34.7 million and repaid a significant portion of the
shareholder loans, which amounted to approximately US$8.4 million for the year
ended March 31, 2010. We also consummated a Private Placement transaction on
February 26, 2010 and received aggregate net proceeds of approximately US$24.6
million from the Private Placement.




The
following tables provide detailed information about our net cash flow for the
periods indicated:




55




Year ended March 31,2010
                      
                      
                      2009(Amount in thousands of US
                        dollars)Net
      cash provided by (used in) operating activities
                      
                      
                      34,686
                      
                      
                      
                      (4,353
                      )Net
      cash provided by (used in) investing activities
                      
                      
                      11,309
                      
                      
                      
                      (14,807
                      )Net
      cash provided by financing actives
                      
                      
                      8,228
                      
                      
                      
                      17,632Effect
      of foreign currency exchange rate changes on cash
                      
                      
                      (3
                      )
                      
                      
                      (3
                      )Net
      increase/(decrease) in cash and cash equivalents
                      
                      
                      54,220
                      
                      
                      
                      (1,531
                      )






Net
cash provided by (used in) operating activities:




As a
result of our company’s normal business operations, a very significant portion
of our cash was used to import equipment from our suppliers. Before the
equipment was shipped to our customers, the prepayment was recorded as
prepayment to suppliers which was included in prepaid expenses and other current
assets. After the equipment was shipped and  before it was accepted by
our customers, the payments were recorded as deferred cost. For the year ended
March 31, 2009, there was approximately US$10 million of revenue that we
recognized in March 2009 with the corresponding account receivables collected
after the fiscal year end, which resulted in a net negative operating cash flow
for the period.  For the year ended March 31, 2010, we generated
approximately US$34.7 million positive net operating cash flow.  This
positive cash flow was mainly due to the following: (1) the significant increase
of the projects that were signed and completed during the period, which resulted
in a significant increase of net income to US$15 million from US$7 million as
compared to the previous period.  (2) the successful completion of
most of the  uncompleted projects that were brought forward from the
previous period, which caused  the balance of the prepayments to
suppliers and deferred cost to decrease significantly by approximately US$20
million,  a corresponding decrease of approximately $14 million in
deferred revenue and resulted in an increased of roughly $6 million
in  operating cash flow; and (3) the timely collection of our account
receivables for both the previous period and the current period, which caused
the accounts receivable balance to be reduced significantly by approximately
US$13 million.




On
average, our outstanding customer accounts are normally settled within 180 days.
Contracts signed in currencies other than Renminbi are typically settled in
letter of credit, with average outstanding periods of between 2-3
months.  Contracts signed in Renminbi are normally collected within 6
months.  For the year ended March 31, 2010 and 2009, the days of sales
outstanding was14 days and 176 days, respectively.  The relative
longer average days of outstanding customer accounts for the year ended March
31, 2009 was a result of approximately US$10 million of revenue that we
recognized in March 2009 but was not settled until after the fiscal year ended
with a credit period less than 6 months.  There were no material
receivables that were outstanding greater than 180 days as of March 31, 2010 and
2009.




Net
cash provided by (used in) investing activities:




Our net
cash provided by (used in) investing activities included the following
transactions: (1) cash received for sales of short-term investments; (2) cash
used in purchasing office equipment, computer software and other long-term
assets, (3) cash loaned to/repaid by third parties, and (4) merger expenses paid
for the reverse acquisition transaction consummated.  Historically,
cash provided by (used in) investing activities was not considered significant.
In February 2009, we temporarily loaned approximately US$15 million to a third
party, which was settled in September 2009. For the year ended March 31, 2010,
we also paid approximately US$0.3 in million merger expenses related to the
cancellation of 4,690,000 shares owned by our former principal shareholder, as a
result of the Share Exchange having been consummated.




Net
cash provided by financing activities:




Our net
cash provided by financing activities included the following transactions: (1)
the loans we borrowed from and repaid to our shareholders; (2) cash provided by
(used in) resulted from an increase or decrease of our restricted cash balance,
which represents our bank deposits held as collateral for our credit facilities;
(3) net proceeds received from the Private Placement consummated on February 26,
2010 which was approximately US$24.6 million; and (4) we also settled our
payable for software copyright purchased in December 2008 which amounted to
approximately US$5.97 million.


56




As of
March 31, 2009, we borrowed an aggregate of approximately US$26.0 million from
our shareholders to finance equipment purchases from our
suppliers.  Shareholder’s loan due from Mr. Zuo was unsecured,
interest free and payable on demand.  Shareholder’s loans from our
Japanese shareholder were also unsecured, but bears interest at 3% to 5% per
annum.  With the rapid growth of our revenue and cash provided in
operating activities, we repaid approximately US$8.4 million to our shareholders
for the year ended March 31, 2010. Our shareholders also forgave approximately
US$9.4 million of their debts and contributed as additional capital to our
company for the year ended March 31, 2010. As of March 31, 2010, we still owe
our shareholders approximately US$8.5 million, which consisted of approximately
US$0.94 million due to Mr. Zuo and approximately US$7.52 million due to our
Japanese shareholder, SJ Asia Pacific Limited. We did not sign any written
agreement with Mr. Zuo in regards to the loan we borrowed from
him.  Based on the loan agreements we signed with our Japanese
shareholder, these outstanding loans bear interest at 5% per annum and
will  expire on June 30, 2010. Any delayed repayment of these loans
without the prior consent from our Japanese shareholder is subject to a 1%
penalty. Although we did not receive any commitment from our Japanese
shareholder not to demand repayment of the loan, we believe that along with the
rapid growth of our revenue and cash generated from operating activities, our
financial position has improved to the point which allows us to repay our
shareholders’ loan using money earned from operations on demand without having
any significant adverse impact on our financial position and
operations.




Credit
Facilities:




As of
March 31, 2010, we had available banking facilities (“General Facilities”),
which consisted of overdraft, guarantee line and import trade finance and
facilities for negotiation of export documentary credit discrepant bills against
letters of indemnity, up to an aggregate amount of HK$62.3 million (equivalent
to approximately US$8 million) as compared to an aggregate amount of general
facilities of HK$16.5 million (equivalent to approximately US$2 million) as of
March 31, 2009. Collaterals for the General Facilities include our bank deposits
classified as restricted cash, trading securities, unlimited guarantee from Mr.
Jianzhong Zuo (CEO and Chairman of our company), a standby letter of credit of
not less than HK$45 million (or approximately US$5.8 million) issued by a bank
which is in turn guaranteed by SJI Inc (a stockholder of our company) and
undertaking from Hua Shen HK to maintain a tangible net worth at not less than
HK$5 million (or approximately US$644 thousand).  We readily meet this
requirement and complied with this requirement during all periods presented.
There is low risk of non-compliance, especially, considering that our bank’s
requirement for tangible net worth is far below our current tangible net
worth.  In addition, on August 6, 2009, we obtained a banking facility
for import facilities up to HK$6 million (equivalent to approximately US$774
thousand) under a Special Loan Guarantee Scheme sponsored and guaranteed by the
Government of the Hong Kong Special Administrative Region (“Government Sponsored
Facility”). Collaterals for the Government Sponsored Facility include a
guarantee for HK$6,000,000 from us. As of March 31, 2010, there was no borrowing
under the Government Sponsored Facility. Going forward, we do not expect any
negative changes in our general credit facilities, especially in light of the
fact that our sales have been growing rapidly.




Use
of proceeds from Private Placement:




We intend
to use the proceeds that we received in the Private Placement to build and
develop a new manufacturing facility in China and to upgrade our software
research and development department. Although we expect these costs to be
material, management is still in discussions and negotiations with relevant
parties and is currently unable to quantify these expected costs.  We
do not intend to use such proceeds to repay any portion of the shareholder
loans.




C.
            Off-Balance
      Sheet Arrangements




Our
company did not have any significant off-balance sheet arrangements as of March
31, 2010.




D.
            Tabular
      Disclosure of Contractual
Obligations




The
following table sets forth our company’s contractual obligations as of March 31,
2010:




57




Office RentalPayable
      within fiscal year ending March 31,-
      2011
                    
                    $
                    418,518-
      2012
                    
                    
                    267,932-
      2013
                    
                    
                    219,447-
      2014
                    
                    
                    13,898-
      Thereafter
                    
                    
                    -Total
      minimum lease payments
                    
                    $
                    919,795




Item
      6A
            Quantitative
      and Qualitative Disclosures About Market
Risk




Not
applicable to smaller reporting companies.




Item
      7
            Financial
      Statements and Supplementary Financial
Data




Consolidated
Financial Statements




The
financial statements required by this item begin on page F-1
hereof.




Item
      8
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure.




None.




Item
      8A(T).
            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, as
of March 31, 2010, of the design and operation of our disclosure controls and
procedures, as such term is defined in Exchange Act Rules 13a-15(e) and
15d-15(e). Based on this evaluation, our principal executive officer and
principal financial officer have concluded that, as of such date, our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in our Exchange Act reports is recorded, processed, summarized,
and reported within the time periods specified in the SEC’s rules and forms, and
that such information is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required
disclosure.




Internal
Controls Over Financial Reporting




Management’s
Report on Internal Control over Financial Reporting.




Our management is responsible for
establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act Rules 13a-15(f) and
15d-15(f).  Internal control over financial reporting refers to the
process designed by, or under the supervision of, our principal executive
officer and principal financial officer, and effected by our Board of Directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles, and includes those policies and procedures that:




(1)
              Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of our
      assets;
  (2)
              Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that our receipts and expenditures are being
      made only in accordance with authorization of our management and
      directors; and
  (3)
              Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisitions, use or disposition of our assets that could
      have a material effect on the financial
  statements.





58




Internal control over financial
reporting cannot provide absolute assurance of achieving financial reporting
objectives because of its inherent limitations.  Internal control over
financial reporting is a process that involves human diligence and compliance
and is subject to lapses in judgment and breakdowns resulting from human
failures. Internal control over financial reporting also can be circumvented by
collusion or improper management override.  Because of such limitations,
there is a risk that material misstatements may not be prevented or detected on
a timely basis by internal control over financial reporting.  However,
these inherent limitations are known features of the financial reporting
process. Therefore, it is possible to design into the process safeguards to
reduce, though not eliminate, this risk. Management is responsible for
establishing and maintaining adequate internal control over financial reporting
for the company.




Management has used the framework set
forth in the report entitled Internal Control—Integrated Framework published by
the Committee of Sponsoring Organizations of the Treadway Commission, known as
COSO, to evaluate the effectiveness of our internal control over financial
reporting. Based on this assessment, our Chief Executive Officer and Chief
Financial Officer have concluded that our internal control over financial
reporting was effective as of March 31, 2010.




This Annual Report does not include an
attestation report of our registered public accounting firm regarding internal
control over financial reporting. Our management’s report was not subject to
attestation by our registered public accounting firm pursuant to temporary rules
of the SEC that permit us to provide only our management’s report in this Annual
Report.




Changes
in Internal Controls over Financial Reporting.




There has been no change in our
internal control over financial reporting during our last fiscal quarter that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.




Item
      8B.
            Other
      Information




None.


59




PART
III




Item
      9
            Directors,
      Executive Officers and Corporate
Governance




Directors
and Executive Officers




Set forth below are the names of our
directors, officers and significant employees, their age, all positions and
offices that they hold with us, the period during which they have served as
such, and their business experience during at least the last five
years.  The directors will serve until the next annual meeting of the
stockholders or until their successors are elected or appointed and qualified.
Executive officers will serve at the board’s discretion.







Name
              
              Age
              
              PositionJianzhong
      Zuo
              
              41
              
              Chief
      Executive Officer, President and Chairman of the BoardYong
      Zhao
              
              38
              
              Chief
      Financial OfficerHirofumi
      Kotoi
              
              47
              
              DirectorJoel
      Paritz(1)
              
              66
              
              Independent
      DirectorXiaojun
      Li(1)
              
              47
              
              Independent
      DirectorHongjie
      Chen(1)
              
              38
              
              Independent
      Director




(1)
Serves as a member of the Audit Committee, the Compensation Committee and the
Nominating and Corporate Governance Committee.




Jianzhong
Zuo, Chief Executive Officer, President and Chairman




Mr. Zuo has been our Chief Executive
Officer, President and Chairman of the Board since February 26, 2010. Mr. Zuo
founded our wholly-owned subsidiary, Hua Shen Trading (International) Ltd., and
served as its President since 1999. From 1993 to 1996, Mr. Zuo worked at
Shenzhen Huashen Shiye International and Beijing Huashen Automation Engineering,
and from 1992 to 1993 he was at Beijing Nonferrous Metal Research Institute. He
earned his M.S. degree from the University of Science and Technology, Beijing in
1992 and an Executive MBA from the Central European Business School in
2007.




Yong
Zhao, Chief Financial Officer




Mr. Zhao was appointed as our Chief
Financial Officer on February 26, 2010. Mr. Zhao joined our wholly owned
subsidiary, Beijing JianXin Petrochemical Engineering Ltd., as the Chief
Financial Officer in 2008. From 1998 to 2008, he served as a financial manager
for Beijing Feite Tianyuan Environmental Protection, Ltd., Co., Beijing Huashen
Huizheng System Engineering Technology, Ltd., Co. and Beijing Huashen Guotong
Technology Development Ltd. Mr. Zhao earned his Certificate in Project Financial
Analysis at Beijing Technology and Business University in 2004 and earned his
Bachelors Degree in Finance from Capital University of Economics and Business in
1992.




Hirofumi
Kotoi, Director




Mr. Kotoi has been a member of our
Board of Directors since March 27, 2010. Mr. Kotoi is a Vice-President and
Representative Director at SJI Inc. where he has worked since June 1990. He
earned his master degree from Kyoto University and completed a Ph.D. course
major in Computer science. He also studied at the University of Science and
Technology of China. A Chinese native, he came to Japan as a government funded
overseas student in 1981.




Joel
Paritz, Director




Mr. Paritz has been a member of our
Board of Directors since May 17, 2010. Since 1980, Mr. Paritz has been the
President of his own firm, Paritz & Company, P.A., a mid-size regional
accounting and consulting firm servicing clients in the New York tri-state area
and operations of multi-national companies. Previously, he was employed by Ernst
& Young, in both the audit and tax departments. Mr. Paritz is a member of
the New York and New Jersey Societies of Certified Public Accountants, American
Institute of Certified Public Accountants and the Securities and Exchange
Commission Practice Section. Since 2006, Mr. Paritz has been a member of the
board of directors of Bancorp of New Jersey, Inc. He is a Certified Public
Accountant licensed by the States of New York and New Jersey. He received his
MBA and a bachelors degree in accounting from Rutgers
University.


60




Xiaojun
Li, Director




Mr. Li has been a member of our Board
of Directors since May 17, 2010. Currently, Mr. Li is the president of ShengYuan
Investment Company Ltd., an international investment and trading company, and
vice president of Zhonghui Guohua Industrial Group Company Limited, a major
Chinese mining company. He also serves as deputy secretary of the National
Development and Reform Commission of China Industrial Development Association,
and has served as general manager of China’s Overseas Economic Cooperation
Corporation of State Foreign Trade, Central Asia branch. Mr. Li received his
bachelor’s degree in economics from the Political Education Department of
Xinjiang University.




Hongjie
Chen, Director




Mr. Chen has been a member of our Board
of Directors since May 17, 2010. Since 1998, Mr. Chen has been a managing
director of the investment banking firm Haitong Securities Co., Ltd. Previously,
he was a financial manager with Lison International Ltd., a subsidiary of
Sinopec Shanghai Engineering Co., Ltd. (“SSEC”) in Hong Kong, and a project
financial analyst at SSEC. Mr. Chen received his Bachelor of Economics at
Shanghai University of Engineering Science and his EMBA from China Europe
International Business School.




Family
Relationships




There are no family relationships
between any of our directors or executive officers.




Code
of Ethics




We adopted a Code of Business Conduct
and Ethics on May 14, 2010. The Code of Ethics, in accordance with Section 406
of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K, constitutes
our Code of Ethics for our principal executive officer, our principal financial
and accounting officer and our other senior financial officers. The Code of
Ethics is intended to promote honest and ethical conduct, full and accurate
reporting, and compliance with laws as well as other matters. A printed copy of
the Code of Ethics may be obtained free of charge by writing to LianDi Clean
Technology Inc., Unit 401-405.4/F, Tower B, Wanliuxingui Building, 28
Wanquanzhuang Road, Haidian District, Beijing, China 100089.




Board
Composition




The Board of Directors is currently
composed of five members. All actions of the Board of Directors require the
approval of a majority of the directors in attendance at a meeting at which a
quorum is present. A quorum is a majority of the Board of
Directors.




Committees
of the Board of Directors




Audit
Committee




Our Audit Committee consists of Joel
Paritz, Xiaojun Li and Hongjie Chen, each of whom is independent. The Audit
Committee assists the Board of Directors oversight of (i) the integrity of the
our financial statements, (ii) our compliance with legal and regulatory
requirements, (iii) the independent auditor’s qualifications and independence,
and (iv) the performance of our internal audit function and independent auditor,
and prepares the report that the SEC requires to be included in our annual proxy
statement. The audit committee operates under a written charter. Mr. Paritz is
the Chairman of our audit committee.




The Board of Directors determined that
Mr. Paritz possesses accounting or related financial management experience that
qualifies him as financially sophisticated within the meaning of Rule
4350(d)(2)(A) of the Nasdaq Marketplace Rules and that he is an “audit committee
financial expert” as defined by the rules and regulations of the
SEC.


61




Nominating
and Corporate Governance Committee




The purpose of the Nominating and
Corporate Governance Committee is to assist the Board of Directors in
identifying qualified individuals to become members of our Board of Directors,
in determining the composition of the Board of Directors and in monitoring the
process to assess Board effectiveness. Each of Joel Paritz , Xiaojun Li and
Hongjie Chen are members of the Nominating and Corporate Governance Committee.
The Nominating and Corporate Governance Committee operates under a written
charter. Mr. Paritz is the Chairman of the Nominating Committee.




Compensation
Committee




The Compensation Committee is
responsible for overseeing and, as appropriate, making recommendations to the
Board of Directors regarding the annual salaries and other compensation of our
executive officers and general employees and other policies, and for providing
assistance and recommendations with respect to our compensation policies and
practices. Each of Joel Paritz, Xiaojun Li and Hongjie Chen are members of the
Compensation Committee. The Compensation Committee operates under a written
charter. Mr. Paritz is the Chairman of Compensation Committee.




Policy
Regarding Board Attendance




Our directors are expected to attend
meetings of the Board of Directors as frequently as necessary to properly
discharge their responsibilities and to spend the time needed to prepare for
each such meeting. Our directors are expected to attend annual meetings of
stockholders, but we do not have a formal policy requiring them to do
so.




Shareholder
Communications




We have a process for shareholders who
wish to communicate with the Board of Directors. Shareholders who wish to
communicate with the Board may write to it at our address given above. These
communications will be reviewed by one or more of our employees designated by
the Board, who will determine whether they should be presented to the Board. The
purpose of this screening is to allow the Board to avoid having to consider
irrelevant or inappropriate communications.




Section 16(a)
Beneficial Ownership Reporting Compliance




Section 16(a) of the Exchange Act
requires our executive officers, directors and persons who beneficially own more
than 10% of a registered class of our equity securities to file with the SEC
initial reports of ownership and reports of changes in ownership of our common
stock and other equity securities. These executive officers, directors, and
greater than 10% beneficial owners are required by SEC regulation to furnish us
with copies of all Section 16(a) forms filed by such reporting
persons.




Based solely on our review of such
forms furnished to us, we believe that Jianzhong Zuo did not timely file one
Form 3, Yong Zhao did not timely file one Form 3, Hirofumi Kotoi did not timely
file one Form 3, Hongjie Chen did not timely file one Form 3, Hua Shen Trading
(International) Ltd. did not timely file one Form 3, China LianDi Energy
Resources Engineering Technology Ltd. did not timely file one Form 3 and SJ Asia
Pacific Ltd. did not timely file one Form 3.




Limitation
of Liability and Indemnification of Officers and Directors




Our articles of incorporation limit the
liability of our directors and officers under certain circumstances. Our
articles of incorporation provide that the liability of directors or officers
for monetary damages are eliminated to the fullest extent permitted by Nevada
law. In addition, our directors and officers are indemnified as provided by our
articles of incorporation, our bylaws and the Nevada Revised Statutes. Our
bylaws and articles of incorporation provide that we will indemnify our
directors, officers, employees, and agents, to the fullest extent to the extent
required by the Nevada Revised Statutes and shall indemnify such individuals to
the extent permitted by the Nevada Revised Statutes.


62




Item
      10
              Executive
      Compensation




Summary
Compensation Table




The
following table sets forth all cash compensation paid by the Company, as well as
certain other compensation paid or accrued, for each of the last three fiscal
years of the Company to each named executive officers.





Summary Compensation of Named
Executive Officers




Name and Principal Position
                                      
                                      Fiscal
                                        Year
                                      
                                      Salary ($)
                                      
                                      
                                      Bonus ($)
                                      
                                      
                                      Option
                                        Awards
                                      
                                      
                                      All Other
                                        compensation
                                        ($)
                                      
                                      
                                      Total ($)Reed
      Buley, Former CEO,
                                      
                                      2010
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —CFO,
      President and Secretary *
                                      
                                      2009
                                      
                                      
                                      23,150
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      23,1502008
                                      
                                      
                                      30,863
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      30,863Jianzhong
      Zuo, President and
                                      
                                      2010
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —Chief
      Executive Officer
                                      
                                      2009
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —2008
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —Yong
      Zhao,
                                      
                                      2010
                                      
                                      
                                      7,028
                                      
                                      
                                      
                                      3,514
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      10,542Chief
      Financial Officer
                                      
                                      2009
                                      
                                      
                                      7,028
                                      
                                      
                                      
                                      3,514
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      10,5422008
                                      
                                      
                                      7,028
                                      
                                      
                                      
                                      3,514
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      10,542





*Mr. Buley resigned as
President and Secretary on February 26, 2010, in connection with the Share
Exchange.




During
each of the last three fiscal years, none of our other officers had salary and
bonus greater than $31,000. In addition, our executive officers and/or their
respective affiliates will be reimbursed by us for any out-of-pocket expenses
incurred in connection with activities conducted on our behalf. There is no
limit on the amount of these out-of-pocket expenses and there will be no review
of the reasonableness of such expenses by anyone other than our Board of
Directors, which includes persons who may seek reimbursement, or a court of
competent jurisdiction if such reimbursement is challenged.




Employment
Agreements




Jianzhong
Zuo




Mr. Zuo’s employment agreement,
effective June 15, 2008, provides that Mr. Zuo will be employed as President of
Beijing JianXin for a two year term, which term has been extended for an
additional two years until June 15, 2012. During the term of the agreement, Mr.
Zuo will devote substantially all of his time to the service of the Company and
may not compete directly or indirectly with us. We may terminate Mr. Zuo for
cause at any time, and without cause upon 30 days notice. Mr. Zuo may resign
without good reason upon 30 days notice.




Mr. Zuo receives no annual salary under
the agreement or otherwise.




Yong
Zhao




Mr. Zhao’s employment agreement,
effective June 15, 2008, provides that Mr. Zuo will be employed as Chief
Financial Officer of Beijing JianXin for a two year term, which term has been
extended for an additional two years until June 15, 2012.  During the
term of the agreement, Mr. Zhao will devote substantially all of his time to the
service of the Company and may not compete directly or indirectly with us. We
may terminate Mr. Zhao for cause at any time, and without cause upon 30 days
notice. Mr. Zhao may resign without good reason upon 30 days
notice.




Mr. Zhao has a verbal agreement with
management setting his compensation at $7,028 annually and a bonus of $3,514
annually.


63




Director
Agreements




In connection with the appointments of
Joel Paritz, Xiaojun Li and Hongjie Chen to our Board of Directors, on May 17,
2010, we entered into one year agreements with each of them. Pursuant to these
agreements, each of Messrs. Chen and Li will receive a fee of $300 per month for
the term of the agreement, while Mr. Paritz will receive a monthly fee of $4,000
for the term of the agreement. Pursuant to their agreements, Messrs. Chen and Li
were each awarded (i) on the date of execution of the agreement, a 5-year option
to purchase up to 5,000 shares of common stock at the fair market value of the
common stock on the date of the grant, such shares vesting in equal quarterly
installments for the one year period following the date of grant, and (ii) on
the one-year anniversary of the execution of the agreement, an additional 5-year
option to purchase up to 5,000 shares of common stock at the fair market value
of the common stock on the date of the grant, such shares vesting in equal
quarterly installments for the one year period following the date of grant.
Pursuant to Mr. Paritz’s agreement, he was awarded (i) on the date of execution
of the agreement, a 5-year option to purchase up to 24,000 shares of common
stock at the fair market value of the common stock on the date of the grant,
such shares vesting in equal quarterly installments for the one year period
following the date of grant, and (ii) on the one-year anniversary of the
execution of the agreement, an additional 5-year option to purchase up to 24,000
shares of common stock at the fair market value of the common stock on the date
of the grant, such shares vesting in equal quarterly installments for the one
year period following the date of grant. We will also include such directors
under our directors and officers insurance and reimburse each independent
director for expenses related to his attending meetings of the board, meetings
of committees of the board, executive sessions and shareholder
meetings.




Director
Compensation




Except as set forth above, our
directors are reimbursed for reasonable expenses incurred by them in connection
with attending Board of Directors’ meetings, but they do not receive any other
compensation for serving on the Board of Directors.




Bonuses
and Deferred Compensation




We do not have any bonus, deferred
compensation or retirement plans. All decisions regarding compensation are
determined by our Compensation Committee.




Options
and Stock Appreciation Rights




We do not currently have a stock option
or other equity incentive plan. We intend to adopt one or more such programs in
the future.




Payment
of Post-Termination Compensation




The Company does not have
change-in-control agreements with any of its directors or executive officers,
and the Company is not obligated to pay severance or other enhanced benefits to
executive officers upon termination of their employment.




Item
      11
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.




Security
Ownership of Certain Beneficial Owners and Management




The following table sets forth
information regarding beneficial ownership of our common stock as of June 21,
2010 (i) by each person who is known by us to beneficially own more than 5% of
our common stock; (ii) by each of our officers and directors; and
(iii) by all of our officers and directors as a group.  Unless
otherwise stated, the address of all persons in the table is c/o LianDi Clean
Technology Inc., Unit 401-405.4/F, Tower B, Wanliuxingui Building, 28
Wanquanzhuang Road, Haidian District, Beijing, China 100089.




As of June 21, 2010, an aggregate of
29,358,772 shares of our common stock were outstanding.


64





Name & Address of Beneficial Owner and Office, if any
                
                Amount & Nature of
                  Beneficial
                  Ownership(1)
                
                
                Percent of
                  Class(1)SJ Asia Pacific Ltd.(2)
                
                
                6,275,118
                
                
                
                21.37
                %China
      LianDi Energy Resources Engineering Technology Ltd.(3)
                
                
                10,684,660
                
                
                
                36.39Hua
      Shen Trading (International) Ltd.(4)
                
                
                6,838,620
                
                
                
                23.29Jianzhong
      Zuo, Chairman, Chief Executive Officer & President(5)
                
                
                17,523,280
                
                
                
                59.69Yong
      Zhao, Chief Financial Officer
                
                
                0
                
                
                
                0.00Hirofumi
      Kotoi, Director(6)
                
                
                6,275,118
                
                
                
                21.37Joel
      Paritz, Independent Director
                
                
                0
                
                
                
                0.00Xiaojun
      Li, Independent Director
                
                
                0
                
                
                
                0.00Hongjie
      Chen, Independent Director
                
                
                0
                
                
                
                0.00TriPoint
      Global Equities, LLC(7)
                
                
                2,159,462
                
                
                
                7.09All
      officers and directors as a group (6 persons)
                
                
                23,798,398
                
                
                
                81.06
                %







(1)
            Pursuant
      to Rule 13d-3 under the Exchange Act, a person has beneficial ownership of
      any securities as to which such person, directly or indirectly, through
      any contract, arrangement, undertaking, relationship or otherwise has or
      shares voting power and/or investment power or as to which such person has
      the right to acquire such voting and/or or investment power within 60
      days. Unless otherwise stated, each beneficial owner has sole power to
      vote and dispose of the shares.




(2)
            SJ
      Asia Pacific Ltd. is a wholly-owned subsidiary of SJI Inc., a Jasdaq
      listed company organized under the laws of Japan. Hirofumi Kotoi, one of
      our directors, and Jian Li are directors of SJ Asia Pacific Ltd. Its
      business address is Shinagawa Seaside, East Tower 4-12-8,
      Higashi-Shinagawa, Shinagawa-Ku, Tokyo,
Japan.




(3)
            Mr.
      Jianzhong Zuo, our Chairman, Chief Executive Officer and President, is a
      director of China LianDi Energy Resources Engineering Technology Ltd. and
      holds voting and dispositive power over the shares held by
    it.




(4)
            Mr.
      Jianzhong Zuo, our Chairman, Chief Executive Officer and President, is a
      director of Hua Shen Trading (International) Ltd. and holds voting and
      dispositive power over the shares held by
it.




(5)
            Includes
      shares held of record by China LianDi Energy Resources Engineering
      Technology Ltd. and Hua Shen Trading (International) Ltd., each over which
      Mr. Zuo maintains voting and dispositive power. Mr. Zuo has no pecuniary
      interest in the shares held by Hua Shen Trading (International)
      Ltd.




(6)
            Mr.
      Kotoi is a director of SJ Asia Pacific Ltd., a wholly-owned subsidiary of
      SJI Inc., a Jasdaq listed company organized under the laws of Japan, and
      shares voting and dispositive power over the shares held by SJ Asia
      Pacific Ltd. as a result of his position as a director of SJ Asia Pacific
      Ltd.




(7)
            This  number
      includes (a) the following securities held by TriPoint Global Equities,
      LLC, our placement agent in the Private Placement: (i) 725,882 shares of
      common stock underlying Placement Agent Warrants, (ii) 181,473 shares
      underlying placement agent Series A Warrants and (iii) 181,473 shares
      underlying placement agent Series B Warrants; and (b) the following
      securities held by TriPoint Capital Advisors, LLC, our financial
      consultant: (i) 1,070,634 shares of common stock. Mark Elenowitz and
      Michael Boswell share voting and dispositive power over the securities
      held by TriPoint Global Equities, LLC. Mark Elenowitz and Michael Boswell,
      along with Louis Taubman, share voting and dispositive power over the
      securities held by TriPoint Capital Advisors, LLC. The principal address
      of TriPoint Global Equities, LLC is 17 State Street, 20th
      Floor, New York, New York 10004.




Securities
Authorized for Issuance Under Equity Compensation Plans




None.


65




Changes
in Control




Not
Applicable.




Item
      12
            Certain
      Relationships and Related Transactions, and Director
      Independence




Related
Transactions





As of March 31, 2010, we borrowed
approximately $7.5 million from SJ Asia Pacific Limited (a shareholder of the
Company). The loans are unsecured and bear interest at three to five percent per
annum.





As of March 31, 2010, we borrowed
approximately $940,000 from Mr. Zuo (our CEO and Chairman). This loan is
unsecured, interest free and payable on demand.





TriPoint Capital Advisors,
LLC





On February 26, 2010, we issued
TriPoint Capital Advisors, LLC, an affiliate of TriPoint Global Equities, LLC,
820,634 shares of our common stock pursuant to the Exchange Agreement in
exchange for 1,500 shares of China LianDi that it owned.





TriPoint Global Equities,
LLC





TriPoint Global Equities, LLC acted as
our placement agent in the Private Placement.





Lock Up
Agreement





On the February 26, 2010, we entered
into a lock-up agreement with China LianDi Energy Resources Engineering
Technology Ltd., an affiliate of Jianzhong Zuo, our Chief Executive Officer,
President and Chairman, whereby such entity is prohibited from selling the
Company’s securities until six (6) months after the effective date of the
registration statement required to be filed under the Registration Rights
Agreement. For one (1) year thereafter, it will be permitted to sell up to
 1/12 of its initial holdings every month.





Securities Escrow
Agreement





On February 26, 2010, we entered into a
make good escrow agreement with the Investors (the “Securities Escrow
Agreement”), pursuant to which China LianDi Energy Resources Engineering
Technology Ltd. (the “Principal Stockholder”), an affiliate of Jianzhong Zuo,
our Chief Executive Officer, President and Chairman, delivered into an escrow
account 1,722,311 shares of common stock (the “Escrow Shares”) to be used as a
share escrow for the achievement of a fiscal year 2011 net income performance
threshold of $20.5 million. With respect to the 2011 performance year, if we
achieve less than 95% of the 2011 performance threshold, then the Escrow Shares
for such year will be delivered to the Investors in the amount of 86,115.55
shares (rounded up to the nearest whole share and pro rata based on the number
of shares of Series A Preferred Stock owned by such Investor at such date) for
each full percentage point by which such threshold was not achieved up to a
maximum of 1,722,311 shares. Any Escrow Shares not delivered to any Investor
because such Investor no longer holds shares of Series A Preferred Stock or
Conversion Shares, or because the 2011 performance threshold was met, shall be
returned to the Principal Stockholder.




Director
Independence




Three of our directors, Messrs. Paritz,
Li and Chen, have been determined to be independent as defined by Rule
5605(a)(2) of the Marketplace Rules of The NASDAQ Stock Market, LLC and Section
10A(m)(3) of the Exchange Act. No transactions, relationships or arrangements
were considered by the board of directors in determining that these directors
were independent.


66




Item
      13
            Principal
      Accounting Fees and Services.




Effective May 6, 2010, we formally
engaged AGCA, Inc. as our principal independent registered public accounting
firm to examine our consolidated financial statements for the fiscal year ended
March 31, 2010.  Prior to May 6, 2010, The Hall Group, CPAs had served
as our auditor.




Fees
for the fiscal years ended March 31, 2010 and 2009




Audit
Fees.




AGCA, Inc. was paid aggregate fees of
approximately $156,000 for the audit of our annual financial statements for the
fiscal year ended March 31, 2010.  The Hall Group, CPA was paid
aggregate fees of approximately $23,000 for the audit of the annual financial
statements of Remediation Services, Inc. for the fiscal year ended December 31,
2009 and review of the quarterly financial statements of Remediation Services,
Inc. for each quarter for the fiscal year ended December 31,
2009.




Audit-Related
Fees.




None




Tax
Fees.




None.




All Other Fees.




The aggregate fees billed in the fiscal
years ended March 31, 2010 and 2009 for products and services provided by the
principal accountant for the relevant fiscal year, other than services reported
above under other captions of this Item 13 are $138,000 and $0,
respectively.




As provided for in our Audit Committee
charter, the Audit Committee pre-approves all audit and non-audit services by
the independent auditors as required by applicable law and the rules of any
securities exchange upon which our securities may be listed.


67




PART
IV




Item
      14
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES





Exhibit
                    No.
                  
                  Description2.1
                  
                  Share
      Exchange Agreement dated February 26, 2010, by and among LianDi Clean
      Technology Inc. (f/k/a Remediation Services, Inc.), Reed Buley, China
      LianDi Clean Technology Engineering Ltd., and the shareholders of China
      LianDi Clean Technology Engineering Ltd.(1)3.1
                  
                  Articles
      of Incorporation of LianDi Clean Technology Inc., as amended(2)3.3
                  
                  Certificate
      of Designation(1)3.4
                  
                  By-laws
      (2)4.1
                  
                  Registration
      Rights Agreement dated February 26, 2010 by and among LianDi Clean
      Technology Inc. (f/k/a Remediation Services, Inc.) and certain investors
      listed therein(1)4.2
                  
                  Form
      of Series A Warrant(1)4.3
                  
                  Form
      of Series B Warrant(1)10.1
                  
                  Securities
      Purchase Agreement dated as of February 26, 2010 by and among LianDi Clean
      Technology Inc. (f/k/a Remediation Services, Inc.) and certain investors
      listed therein(1)10.2
                  
                  Securities
      Escrow Agreement dated as of February 26, 2010 by and among LianDi Clean
      Technology Inc. (f/k/a Remediation Services, Inc.), China LianDi Energy
      Resources Engineering Technology Ltd. and certain investors listed
      therein(1)10.3
                  
                  Lock-up
      Agreement dated February 26, 2010 by and among LianDi Clean Technology
      Inc. (f/k/a Remediation Services, Inc.) and China LianDi Energy Resources
      Engineering Technology Ltd.(1)10.4
                  
                  Placement
      Agent Agreement with TriPoint Global Equities, LLC(2)10.5
                  
                  Employment
      Agreement with Jianzhong Zuo(2)10.6
                  
                  Employment
      Agreement with Yong Zhao(2)10.7
                  
                  Sales
      Contract by and between Hua Shen Trading (International) Limited and China
      Petrochemical International Co. Ltd. dated as of September 28, 2007(1)10.8
                  
                  Cooper
      Cameron Valves Authorization Letter dated as of September 6, 2006(1)10.9
                  
                  Form
      of Rotork Authorization Letter(1)10.10
                  
                  International
      Distributor Agreement by and between Petrochemical Engineering Limited and
      DeltaValve dated as of February 12, 2010(2)10.11
                  
                  Poyam
      Authorization Letter dated as of May 20, 2010(2)10.12
                  
                  After-sale
      Services Agreement by and between Petrochemical Engineering Limited and
      AMPO S. Coop Poyam Valves dated as of January 20, 2010(2)10.13
                  
                  Entrustment
      purchase agreement by and between Beijing JianXin Petrochemical
      Engineering Ltd. and Petrochemical Engineering Limited(1)10.14
                  
                  Loan
      Agreements from Shareholder(2)10.15
                  
                  Independent
      Director Agreement of Joel Paritz(3)10.16
                  
                  Independent
      Director Agreement of Xiaojun Li(3)10.17
                  
                  Independent
      Director Agreement of Hongjie Chen(3)14.1
                  
                  Code
      of Business Conduct and Ethics(3)16.1
                  
                  Letter
      from The Hall Group, CPAs dated May 10, 2010 regarding the change in the
      Registrant’s certifying accountant (4)16.2
                  
                  Letter
      from The Hall Group, CPAs dated May 13, 2010 regarding the change in the
      Registrant’s certifying accountant (5)21.1
                  
                  Subsidiaries
      of the Registrant*31.1
                  
                  Certification
      of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002*31.2
                  
                  Certification
      of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002*32.1
                  
                  Certification
      of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002*32.2
                  
                  Certification
      of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002*




68







* Filed
herewith




(1)
Incorporated by reference herein to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on March 4, 2010.




(2)
Incorporated by reference herein to the Company’s Registration Statement on Form
S-1/A filed with the Securities and Exchange Commission on May 24,
2010.




(3)
Incorporated by reference herein to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on May 21, 2010.




(4)
Incorporated by reference herein to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on May 11, 2010.




(5)
Incorporated by reference herein to the Company’s Current Report on Form 8-K/A
filed with the Securities and Exchange Commission on May 13,
2010.


69




SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.





LIANDI
      CLEAN TECHNOLOGY  INC.June
      25, 2010
              By:
              /s/
      Jianzhong Zuo(Date
      Signed)
              
              Jianzhong
      Zuo, President and Chief Executive
Officer




Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated.





Signature
                            
                            Capacity
                            
                            Date/s/
      Jianzhong Zuo
                            
                            Chief
      Executive Officer, President and
                              Chairman
      (Principal Executive Officer)
                            
                            June
      25, 2010Jianzhong
      Zuo/s/ Yong
      Zhao
                            
                            Chief
      Financial Officer (Principal
                              Accounting
      Officer)
                            
                            June
      25, 2010Yong
      Zhao/s/ Hirofumi
      Kotoi
                            
                            Director
                            
                            June
      25, 2010Hirofumi
      Kotoi/s/ Joel
      Paritz
                            
                            Director
                            
                            June
      25, 2010Joel
      Paritz/s/ Hongjie
      Chen
                            
                            Director
                            
                            June
      25, 2010Hongjie
      Chen/s/ Xiaojun
      Li
                            
                            Director
                            
                            June
      25, 2010Xiaojun
      Li




70





Exhibit
Index




Exhibit
                No.
              
              Description2.1
              
              Share
      Exchange Agreement dated February 26, 2010, by and among LianDi Clean
      Technology Inc. (f/k/a Remediation Services, Inc.), Reed Buley, China
      LianDi Clean Technology Engineering Ltd., and the shareholders of China
      LianDi Clean Technology Engineering Ltd.(1)3.1
              
              Articles
      of Incorporation of LianDi Clean Technology Inc., as amended(2)3.3
              
              Certificate
      of Designation(1)3.4
              
              By-laws
      (2)4.1
              
              Registration
      Rights Agreement dated February 26, 2010 by and among LianDi Clean
      Technology Inc. (f/k/a Remediation Services, Inc.) and certain investors
      listed therein(1)4.2
              
              Form
      of Series A Warrant(1)4.3
              
              Form
      of Series B Warrant(1)10.1
              
              Securities
      Purchase Agreement dated as of February 26, 2010 by and among LianDi Clean
      Technology Inc. (f/k/a Remediation Services, Inc.) and certain investors
      listed therein(1)10.2
              
              Securities
      Escrow Agreement dated as of February 26, 2010 by and among LianDi Clean
      Technology Inc. (f/k/a Remediation Services, Inc.), China LianDi Energy
      Resources Engineering Technology Ltd. and certain investors listed
      therein(1)10.3
              
              Lock-up
      Agreement dated February 26, 2010 by and among LianDi Clean Technology
      Inc. (f/k/a Remediation Services, Inc.) and China LianDi Energy Resources
      Engineering Technology Ltd.(1)10.4
              
              Placement
      Agent Agreement with TriPoint Global Equities, LLC(2)10.5
              
              Employment
      Agreement with Jianzhong Zuo(2)10.6
              
              Employment
      Agreement with Yong Zhao(2)10.7
              
              Sales
      Contract by and between Hua Shen Trading (International) Limited and China
      Petrochemical International Co. Ltd. dated as of September 28, 2007(1)10.8
              
              Cooper
      Cameron Valves Authorization Letter dated as of September 6, 2006(1)10.9
              
              Form
      of Rotork Authorization Letter(1)10.10
              
              International
      Distributor Agreement by and between Petrochemical Engineering Limited and
      DeltaValve dated as of February 12, 2010(2)10.11
              
              Poyam
      Authorization Letter dated as of May 20, 2010(2)10.12
              
              After-sale
      Services Agreement by and between Petrochemical Engineering Limited and
      AMPO S. Coop Poyam Valves dated as of January 20, 2010(2)10.13
              
              Entrustment
      purchase agreement by and between Beijing JianXin Petrochemical
      Engineering Ltd. and Petrochemical Engineering Limited(1)10.14
              
              Loan
      Agreements from Shareholder(2)10.15
              
              Independent
      Director Agreement of Joel Paritz(3)10.16
              
              Independent
      Director Agreement of Xiaojun Li(3)10.17
              
              Independent
      Director Agreement of Hongjie Chen(3)14.1
              
              Code
      of Business Conduct and Ethics(3)16.1
              
              Letter
      from The Hall Group, CPAs dated May 10, 2010 regarding the change in the
      Registrant’s certifying accountant (4)16.2
              
              Letter
      from The Hall Group, CPAs dated May 13, 2010 regarding the change in the
      Registrant’s certifying accountant (5)21.1
              
              Subsidiaries
      of the Registrant*31.1
              
              Certification
      of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002*31.2
              
              Certification
      of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002*32.1
              
              Certification
      of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002*32.2
              
              Certification
      of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002*





* Filed
herewith


71




(1)
Incorporated by reference herein to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on March 4, 2010.




(2)
Incorporated by reference herein to the Company’s Registration Statement on Form
S-1/A filed with the Securities and Exchange Commission on May 24,
2010.




(3)
Incorporated by reference herein to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on May 21, 2010.




(4)
Incorporated by reference herein to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on May 11, 2010.




(5)
Incorporated by reference herein to the Company’s Current Report on Form 8-K/A
filed with the Securities and Exchange Commission on May 13,
2010.


72




LIANDI
CLEAN TECHNOLOGY INC.


INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009





PageReport
      of Independent Registered Public Accounting Firm
                F-2Report
      of Independent Registered Public Accounting Firm
                F-3Consolidated
      Balance Sheets as of March 31, 2010 and 2009
                F-4Consolidated
      Statements of Income and Comprehensive Income for the Years ended March
      31, 2010 and 2009
                F-5Consolidated
      Statements of Cash Flows for the Years ended March 31, 2010 and
      2009
                F-6Consolidated
      Statements of Changes in Shareholders’ Equity for the Years ended March
      31, 2010 and 2009
                F-7Notes
      to Consolidated Financial Statements
                F-8
      - F-37




F-1


REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM





TO THE
STOCKHOLDERS AND BOARD OF DIRECTORS OF


CHINA
LIANDI CLEAN TECHNOLOGY ENGINEERING LIMITED:




We have
audited the accompanying consolidated balance sheet of China LianDi Clean
Technology Engineering Limited (a wholly-owned subsidiary of LianDi Clean
Technology Inc.) and its subsidiaries (collectively the “Company”) as of March
31, 2009 and the related consolidated statements of income and comprehensive
income, shareholders’ equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of China LianDi
Clean Technology Engineering Limited as of March 31, 2009, the consolidated
results of its operations and its consolidated cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.




As
explained in Note 1, the Company completed a reverse acquisition of Remediation
Service Inc. (now known as LianDi Clean Technology Inc.) on February 26, 2010.
As a result, the equity section and earnings per share data of the Company have
been retroactively restated to reflect the reverse acquisition.




/s/ AGCA
CPA Limited




Hong
Kong, March 3, 2010


F-2


REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM





TO THE
STOCKHOLDERS AND BOARD OF DIRECTORS OF


LIANDI
CLEAN TECHNOLOGY INC:




We have
audited the accompanying consolidated balance sheet of LianDi Clean Technology
Inc. and its subsidiaries (collectively the “Company”) as of March 31, 2010 and
the related consolidated statements of income and comprehensive income,
shareholders’ equity and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as
of March 31, 2010, the consolidated results of its operations and its
consolidated cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.




/s/ AGCA,
Inc.




Arcadia,
California




June 25,
2010


F-3


LIANDI
CLEAN TECHNOLOGY INC


CONSOLIDATED
BALANCE SHEETS


(AMOUNTS
EXPRESSED IN US DOLLAR)





As of March 31,2010
                    
                    
                    2009ASSETSCurrent
      AssetsCash
      and cash equivalents
                    
                    $
                    59,238,428
                    
                    
                    $
                    5,018,813Restricted
      cash
                    
                    
                    2,964,864
                    
                    
                    
                    989,475Accounts
      receivable, net of $nil allowance
                    
                    
                    2,295,231
                    
                    
                    
                    15,054,940Deferred
      costs of revenue
                    
                    
                    1,168,025
                    
                    
                    
                    15,063,883Inventories
                    
                    
                    30,103
                    
                    
                    
                    72,199Prepaid
      expenses and deposits
                    
                    
                    657,257
                    
                    
                    
                    6,812,415Other
      receivables, net of $nil allowance
                    
                    
                    3,416,284
                    
                    
                    
                    15,160,782Pledged
      trading securities
                    
                    
                    11,592
                    
                    
                    
                    29,380Total
      current assets
                    
                    
                    69,781,784
                    
                    
                    
                    58,201,887Other
      AssetsProperty
      and equipment, net
                    
                    
                    151,660
                    
                    
                    
                    145,733Intangible
      assets, net
                    
                    
                    5,192,738
                    
                    
                    
                    5,774,660Total
      assets
                    
                    $
                    75,126,182
                    
                    
                    $
                    64,122,280LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      LiabilitiesAccounts
      payable
                    
                    $
                    11,926
                    
                    
                    $
                    -Deferred
      revenue
                    
                    
                    2,481,771
                    
                    
                    
                    18,938,681Other
      payables and accrued expenses
                    
                    
                    3,496,612
                    
                    
                    
                    1,275,711Provision
      for income tax
                    
                    
                    59,763
                    
                    
                    
                    59,869Payable
      for intangible
                    
                    
                    -
                    
                    
                    
                    5,968,490Due
      to shareholders
                    
                    
                    8,461,161
                    
                    
                    
                    26,242,336Preferred
      stock dividend payable
                    
                    
                    184,820
                    
                    
                    
                    -Total
      current liabilities
                    
                    
                    14,696,053
                    
                    
                    
                    52,485,087Total
      liabilities
                    
                    
                    14,696,053
                    
                    
                    
                    52,485,087Commitments
      and Contingencies (Note 19)8%
      Series A contingently redeemable convertible preferred stock (25,000,000
      shares authorized; par value: $0.001 per share; 7,086,078 shares and none
      issued and outstanding, respectively; aggregate liquidation preference
      amount: $24,986,093 and $nil, including accrued but unpaid dividend of
      $184,820 and $nil, at March 31, 2010 and 2009,
    respectively)
                    
                    
                    14,059,018
                    
                    
                    
                    -Shareholders’
      EquityCommon
      stock (par value: $0.001 per share; 50 000,000 shares authorized;
      29,358,772 and 27,354,480 shares issued and outstanding,
      respectively)
                    
                    
                    29,359
                    
                    
                    
                    27,355Additional
      paid-in capital
                    
                    
                    19,891,932
                    
                    
                    
                    22,645Statutory
      reserves
                    
                    
                    1,138,733
                    
                    
                    
                    1,138,733Retained
      earnings
                    
                    
                    25,245,926
                    
                    
                    
                    10,392,768Accumulated
      other comprehensive income
                    
                    
                    65,161
                    
                    
                    
                    55,692Total
      shareholders’ equity
                    
                    
                    46,371,111
                    
                    
                    
                    11,637,193Total
      liabilities and shareholders’ equity
                    
                    $
                    75,126,182
                    
                    
                    $
                    64,122,280




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


F-4


LIANDI
CLEAN TECHNOLOGY INC


CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


(AMOUNTS
EXPRESSED IN US DOLLAR)





For
      the Year Ended March 31,2010
                
                
                2009NET
      REVENUE :Sales
      and installation of equipment
                
                $
                71,152,658
                
                
                $
                25,952,152Sales
      of software
                
                
                6,433,064
                
                
                
                4,791,901Services
                
                
                133,758
                
                
                
                521,23277,719,480
                
                
                
                31,265,285Cost
      of revenue :Cost
      of equipment sold
                
                
                (58,540,656
                )
                
                
                (21,206,730
                )Amortization
      of intangibles
                
                
                (597,449
                )
                
                
                (198,049
                )(59,138,105
                )
                
                
                (21,404,779
                )Gross
      profit
                
                
                18,581,375
                
                
                
                9,860,506Operating
      expenses:Selling
      expenses
                
                
                (1,673,019
                )
                
                
                (1,228,481
                )General
      and administrative expenses
                
                
                (1,304,006
                )
                
                
                (1,177,820
                )Research
      and development cost
                
                
                (91,401
                )
                
                
                (42,158
                )Total
      operating expenses
                
                
                (3,068,426
                )
                
                
                (2,448,459
                )Income
      from operations
                
                
                15,512,949
                
                
                
                7,412,047Other
      income (expenses), netInterest
      income
                
                
                48,864
                
                
                
                48,390Interest
      and bank charges
                
                
                (519,969
                )
                
                
                (366,232
                )Merger
      expenses
                
                
                (275,000
                )
                
                
                -Exchange
      gains (losses), net
                
                
                (293,993
                )
                
                
                37,695Value
      added tax refund
                
                
                465,786
                
                
                
                -Other
                
                
                100,157
                
                
                
                (3,196
                )Total
      other expenses, net
                
                
                (474,155
                )
                
                
                (283,343
                )Income
      before income tax
                
                
                15,038,794
                
                
                
                7,128,704Income
      tax expense
                
                
                (816
                )
                
                
                (41,720
                )NET
      INCOME
                
                
                15,037,978
                
                
                
                7,086,984Preferred
      stock dividend
                
                
                (184,820
                )
                
                
                -NET
      INCOME AVAILABLE TO COMMON STOCKHOLDERS
                
                $
                14,853,158
                
                
                $
                7,086,984COMPREHENSIVE
      INCOME:Net
      income
                
                $
                15,037,978
                
                
                $
                7,086,984Other
      comprehensive income:Foreign
      currency translation adjustment
                
                
                9,469
                
                
                
                43,119Comprehensive
      income
                
                $
                15,047,447
                
                
                $
                7,130,103EARNINGS
      PER SHARE:Basic
                
                $
                0.54
                
                
                $
                0.26Diluted
                
                $
                0.53
                
                
                $
                0.26Weighted
      average number of shares outstanding:Basic
                
                
                27,541,181
                
                
                
                27,354,480Diluted
                
                
                28,230,337
                
                
                
                27,354,480




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


F-5


LIANDI
CLEAN TECHNOLOGY INC


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(AMOUNTS
EXPRESSED IN US DOLLAR)





For the Year Ended March 31,2010
                
                
                2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                15,037,978
                
                
                $
                7,086,984Adjustments
      for:Depreciation
      of property and equipment
                
                
                38,449
                
                
                
                23,474Amortization
      of intangible assets
                
                
                603,892
                
                
                
                198,777Merger
      expenses
                
                
                275,000
                
                
                
                -Impairment
      of inventories
                
                
                -
                
                
                
                30,998Gain
      (loss) on short-term investments
                
                
                (21,763
                )
                
                
                9,799Decrease
      (increase) in assets:Accounts
      receivable
                
                
                12,749,207
                
                
                
                (12,038,588
                )Inventories
                
                
                42,021
                
                
                
                (72,306
                )Deferred
      costs, prepaid expenses and other current assets
                
                
                20,167,261
                
                
                
                (13,648,574
                )Increase
      (decrease) in liabilities:Accounts
      payable
                
                
                11,941
                
                
                
                (361,069
                )Deferred
      revenue and accruals
                
                
                (14,158,370
                )
                
                
                14,381,319Provision
      for income tax
                
                
                (59,839
                )
                
                
                36,261Net
      cash provided by (used in) operating activities
                
                
                34,685,777
                
                
                
                (4,352,925
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from sales of short-term investments
                
                
                39,521
                
                
                
                274,329Purchase
      of property, plant and equipment
                
                
                (44,643
                )
                
                
                (168,857
                )Purchase
      of intangible assets
                
                
                (14,058
                )
                
                
                (5,825
                )Payment
      of merger expenses for reverse acquisition
                
                
                (275,000
                )
                
                
                -Repayment
      from (advance to) other entities
                
                
                11,602,932
                
                
                
                (14,907,083
                )Net
      cash provided by (used in) investing activities
                
                
                11,308,752
                
                
                
                (14,807,436
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:(Repayment
      to) advance from shareholders
                
                
                (8,379,242
                )
                
                
                16,371,471Decrease
      (increase) in restricted cash
                
                
                (1,979,672
                )
                
                
                1,260,985Settlement
      of payable for intangibles (see Note 10)
                
                
                (5,965,488
                )
                
                
                -Proceeds
      from Private Placement (see Note 13)
                
                
                24,552,378
                
                
                
                -Net
      cash provided by financing activities
                
                
                8,227,976
                
                
                
                17,632,456Effect
      of foreign currency translation on cash
                
                
                (2,890
                )
                
                
                (3,374
                )Net
      (decrease) increase in cash and cash equivalents
                
                
                54,219,615
                
                
                
                (1,531,279
                )Cash
      and cash equivalents, beginning of year
                
                
                5,018,813
                
                
                
                6,550,092CASH
      AND CASH EQUIVALENTS, end of year
                
                $
                59,238,428
                
                
                $
                5,018,813SUPPLEMENTAL
      DISCLOSURE INFORMATION:Cash
      paid for interests
                
                $
                236,264
                
                
                $
                262,146Cash
      paid for income tax
                
                $
                816
                
                
                $
                647NONCASH
      INVESTING AND FINANCING TRANSACTIONS:Shareholders’
      forgiveness of debt contributed as capital
                
                $
                9,377,931
                
                
                $
                -Payable
      for intangibles (see Note 10)
                
                $
                -
                
                
                $
                5,941,459




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


F-6


LIANDI
CLEAN TECHNOLOGY INC


CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


(AMOUNTS
EXPRESSED IN US DOLLAR)





AccumulatedCommon
      Stock
                        
                        
                        Additional
                        
                        
                        
                        
                        
                        
                        
                        
                        OtherNumber
                        
                        
                        
                        
                        
                        Paid-in
                        
                        
                        Statutory
                        
                        
                        Retained
                        
                        
                        Comprehensiveof
      Shares
                        
                        
                        Amount
                        
                        
                        Capital
                        
                        
                        Reserves
                        
                        
                        Earnings
                        
                        
                        Income
                        
                        
                        TotalBalance,
      April 1, 2008
                        
                        
                        27,354,480
                        
                        
                        $
                        27,355
                        
                        
                        $
                        22,645
                        
                        
                        $
                        -
                        
                        
                        $
                        4,444,517
                        
                        
                        $
                        12,573
                        
                        
                        $
                        4,507,090Net
      income for the year
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        7,086,984
                        
                        
                        
                        -
                        
                        
                        
                        7,086,984Foreign
      currency translation adjustment
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        43,119
                        
                        
                        
                        43,119Appropriations
      to statutory reserves
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,138,733
                        
                        
                        
                        (1,138,733
                        )
                        
                        
                        -
                        
                        
                        
                        -Balance,
      March 31, 2009
                        
                        
                        27,354,480
                        
                        
                        
                        27,355
                        
                        
                        
                        22,645
                        
                        
                        
                        1,138,733
                        
                        
                        
                        10,392,768
                        
                        
                        
                        55,692
                        
                        
                        
                        11,637,193Effect
      of reverse acquisition
                        
                        
                        1,216,950
                        
                        
                        
                        1,217
                        
                        
                        
                        (1,217
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Net
      income for the year
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        -
                        
                        
                        
                        15,037,978
                        
                        
                        
                        -
                        
                        
                        
                        15,037,978Foreign
      currency translation adjustment
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        9,469
                        
                        
                        
                        9,469Shareholder
      forgiveness of debt contributed as capital
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        9,377,931
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        9,377,931Share
      transfer arrangement and Escrowed share arrangement in Private Placement
      (Note 13)
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        7,272,824
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        7,272,824Issue
      of shares in Private Placement (Note 13)
                        
                        
                        787,342
                        
                        
                        
                        787
                        
                        
                        
                        1,308,593
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,309,380Issue
      of warrants in Private Placement (Note 13)
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,911,156
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,911,156Preferred
      stock dividend
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (184,820
                        )
                        
                        
                        -
                        
                        
                        
                        (184,820
                        )Balance,
      March 31, 2010
                        
                        
                        29,358,772
                        
                        
                        $
                        29,359
                        
                        
                        $
                        19,891,932
                        
                        
                        $
                        1,138,733
                        
                        
                        $
                        25,245,926
                        
                        
                        $
                        65,161
                        
                        
                        $
                        46,371,111




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


F-7


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      1
              DESCRIPTION
      OF BUSINESS AND ORGANIZATION




Nature
of operations




LianDi
Clean Technology Inc. (formerly known as Remediation Service Inc.) (“LianDi
Clean” or the “Company”) is a holding company and, through its subsidiaries,
primarily engages in distributing clean technology for refineries (unheading
units for the delayed coking process), distributing a wide range of petroleum
and petrochemical valves and equipments, providing systems integration,
developing and marketing optimization software for the polymerization process
and providing related technical and engineering services to large domestic
Chinese petroleum and petrochemical companies and other energy
companies.




Corporate
organization




LianDi
Clean was incorporated in the State of Texas on June 25, 1999 under the name
Slopestyle Corporation.  On December 12, 2007, the Company changed its
name from Slopestyle Corporation to Remediation Services, Inc. (“Remediation”)
and re-domiciled from Texas to Nevada.  On February 26, 2010,
Remediation completed a reverse acquisition of China LianDi Clean Technology
Engineering Ltd. (“China LianDi”), which is further described below. The reverse
acquisition of China LianDi resulted in a change-in-control of
Remediation.




On March
17, 2010, Remediation caused to be formed a corporation under the laws of the
State of Nevada called LianDi Clean Technology Inc. (“Merger Sub”) and on the
same day, acquired one hundred shares of Merger Sub’s common stock for
cash.  As such, Merger Sub became a wholly-owned subsidiary of
Remediation.




Effective
as of April 1, 2010, Merger Sub was merged with and into Remediation. As a
result of the merger, the Company’s corporate name was changed to “LianDi Clean
Technology Inc.”  Prior to the merger, Merger Sub had no liabilities
and nominal assets and, as a result of the merger, the separate existence of the
Merger Sub ceased.  LianDi Clean was the surviving corporation in the
merger and, except for the name change provided for in the Agreement and Plan of
Merger, there was no change in the directors, officers, capital structure or
business of the Company.




Details
of LianDi Clean’s subsidiaries as of March 31, 2010 are as follows:





Subsidiaries’ names
              
              Place and date of
                incorporation
              
              Percentage of
                ownership
              
              Principal activitiesChina
      LianDi Clean Technology
                Engineering
      Ltd. (“China LianDi”)
              
              British
      Virgin Islands
                July
      28, 2004
              
              100%
                (directly
      by the
                Company)
              
              Holding
      company of the other subsidiariesHua
      Shen Trading (International)
                Limited
      (“Hua Shen HK”)
              
              Hong
      Kong
                January
      20, 1999
              
              100%
                (through
      China
                LianDi)
              
              Delivering
      of industrial valves and other equipment with the related integration and
      technical servicesPetrochemical
      Engineering
                Limited
      (“PEL HK”)
              
              Hong
      Kong
                September
      13, 2007
              
              100%
                (through
      China
                LianDi)
              
              Delivering
      of industrial valves and other equipment with the related integration and
      technical services, and investment holdingBright
      Flow Control Ltd. (“Bright
                Flow”)
              
              Hong
      Kong
                December
      17, 2007
              
              100%
                (through
      China
                LianDi)
              
              Delivering
      of industrial valves and other equipment with the related integration and
      technical servicesBeijing
      JianXin Petrochemical
                Engineering
      Ltd. (“Beijing
                JianXin”)
              
              People’s
      Republic of
                China
      (“PRC”)
                May
      6, 2008
              
              100%
                (through
      PEL
                HK)
              
              Delivering
      of industrial valves and other equipment with the related integration and
      technical services, developing and marketing optimization software for
      polymerization processes, and provision of delayed coking solutions for
      petrochemical, petroleum and other energy
  companies




F-8


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      1
              DESCRIPTION
      OF BUSINESS AND ORGANIZATION
(CONTINUED)




In July
2004, China LianDi was founded and owned as to 60% by Mr. Jianzhong Zuo (“Mr.
Zuo”, the Chief Executive Officer and Chairman of the Company) and 40% by
another third-party minority shareholder. On October 2, 2007, Mr. Zuo acquired
from that minority shareholder the remaining 40% interest in China LianDi for
US$1, and hence became the sole shareholder of China LianDi. On March 6, 2008,
SJ Asia Pacific Limited (a company incorporated in the British Virgin Island and
wholly owned by SJI Inc., which was incorporated in Japan and whose shares are
listed on Jasdaq Securities Exchange, Inc. in Japan) acquired 51% interest
in China LianDi from Mr. Zuo in exchange for: (i) US$1.00; (ii) the commitment
to invest HK$60,000,000 (or approximately $7.7 million) in China LianDi; and
(iii) the provision of financial support for China LianDi by way of unlimited
shareholder’s loan bearing interest at a rate not exceeding 5% per annum. As a
result, at such times China LianDi was owned 51% by SJ Asia Pacific Limited and
49% by Mr. Zuo.




On
January 8, 2010, Mr. Zuo transferred 25%, 14% and 10% interest in China LianDi
to China LianDi Energy Resources Engineering Technology Ltd (“LianDi Energy”, a
company wholly owned by Mr. Zuo), Hua Shen Trading (International) Ltd. (“Hua
Shen”, a company incorporated in the British Virgin Island and wholly owned by
SJ Asia Pacific Limited whereas Mr. Zuo is a director of this company and holds
voting and dispositive power over the shares held by it) and Rapid Capital
Holdings Ltd (“Rapid Capital”) respectively.  On February 10, 2010, SJ
Asia Pacific Limited and LianDi Energy transferred 28.06% and 1.47% interest in
China LianDi to Rapid Capital (26.53%) and Tripoint Capital Advisors, LLC (3%)
respectively.  On February 12, 2010, Rapid Capital transferred its
31.53% interest in China LianDi to LianDi Energy (15.53%), Hua Shen (11%) and
Dragon Excel Holdings Ltd (5%) respectively. As a result, immediately before the
Share Exchange as defined below, China LianDi was owned as to 23% by SJ
Asia Pacific Limited and 64% by Mr. Zuo through LianDi Energy and Hua
Shen.




Hua Shen
HK was founded by Mr. Zuo in 1999.  On January 8, 2008, China LianDi
acquired 100% ownership interest in Hua Shen HK from Mr. Zuo. As Hua Shen HK and
China LianDi had been under common control, the acquisition of Hua Shen HK by
China LianDi has been accounted for using the “as if” pooling method of
accounting.




In 2007,
China LianDi established PEL HK and Bright Flow, as wholly-owned subsidiaries,
in Hong Kong. In 2008, PEL HK established Beijing JianXin, as a wholly-owned
subsidiary, in the PRC.




Reverse
Acquisition




On
February 26, 2010 (the “Closing Date”), Remediation consummated the transactions
contemplated by the Share Exchange Agreement (the “Exchange Agreement”), by and
among (i) China LianDi and China LianDi’s shareholders, (collectively, the
“China LianDi Shareholders”), who together owned shares constituting 100% of the
issued and outstanding ordinary shares of China LianDi (the “China LianDi
Shares”) and (ii) the former principal stockholder of Remediation. Immediately
prior to the Share Exchange, 4,690,000 shares of Remediation’s common stock then
outstanding were cancelled and retired, so that immediately prior to the Share
Exchange, Remediation had 28,571,430 shares issued and outstanding. Pursuant to
the terms of the Exchange Agreement, the China LianDi Shareholders transferred
to Remediation all of the China LianDi Shares in exchange for the issuance of
27,354,480 shares of Remediation’s common stock, par value $0.001 per share
(such transaction, the “Share Exchange”), representing approximately 96% of
Remediation’s shares of common stock then issued and outstanding. The Share
Exchange resulted in a change in control of Remediation.




China
LianDi also paid $275,000 to Remediation’s former principal shareholder, owner
of the cancelled shares, as a result of the Share Exchange having been
consummated.




As a
result, the Share Exchange has been accounted for as a reverse acquisition
whereby China LianDi is deemed to be the accounting acquirer (legal acquiree)
and Remediation to be the accounting acquiree (legal acquirer).  The
financial statements before the Share Exchange are those of China LianDi with
the results of Remediation being consolidated from the Closing Date. The equity
section and earnings per share of the Company have been retroactively restated
to reflect the reverse acquisition and no goodwill has been
recorded.


F-9


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      2
            SUMMARIES
      OF SIGNIFICANT ACCOUNTING POLICIES




Basis
of preparation and consolidation




The
accompanying consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of
America.




The
consolidated financial statements include the financial statements of the
Company and its subsidiaries. All significant inter-company transactions and
balances between the Company and its subsidiaries are eliminated upon
consolidation.




Use
of estimates




The
preparation of the these consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the related disclosure of contingent assets and liabilities at the date of these
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period.  Management bases its estimates
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances.  Accordingly, actual results
may differ from these estimates under different assumptions or
conditions.




Cash
and cash equivalents




Cash and
cash equivalents consist of all cash balances and highly liquid investments with
an original maturity of three months or less. Because of the short maturity of
these investments, the carrying amounts approximate their fair
value.  Restricted cash is excluded from cash and cash
equivalents.  As of March 31, 2010 and 2009, approximately $12.4
million and $1.7 million of the Company’s cash and cash equivalents were
denominated in Chinese Renminbi (“RMB”) and were placed with banks in the
PRC.  The convertibility of RMB into other currencies and the
remittance of these funds out of the PRC are subject to exchange control
restrictions imposed by the PRC government.




Accounts
receivable




Accounts
receivable is stated at cost, net of an allowance for doubtful
accounts. The Company sets aside an allowance for doubtful accounts, as
required, to account for any estimated losses resulting from the failure of
customers to make required payments. The Company reviews the accounts receivable
on a periodic basis and makes allowances where there is doubt as to the
collectibility of individual balances. In evaluating the collectibility of
individual receivable balances, the Company considers many factors, including
the age of the balance, the customer’s payment history, its current
credit-worthiness and current economic trends.




Inventories




Inventories
are stated at the lower of cost, determined on a specific identification basis,
or market. Costs of inventories include purchase and related costs incurred in
bringing the products to their present location and condition. Market value is
determined by reference to selling prices after the balance sheet date or to
management’s estimates based on prevailing market conditions. The management
will write down the inventories to market value if it is below cost. The
management also regularly evaluates the composition of its inventories to
identify slow-moving and obsolete inventories to determine if valuation
allowance is required.


F-10


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      2
            SUMMARIES
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)




Property
and equipment




Property
and equipment are stated at cost less accumulated depreciation and accumulated
impairment losses, if any. Gains or losses on disposals are reflected as gain or
loss in the year of disposal. The cost of improvements that extend the life of
property and equipment are capitalized. These capitalized costs may include
structural improvements, equipment and fixtures. All ordinary repair and
maintenance costs are expensed as incurred.




Depreciation
for financial reporting purposes is provided using the straight-line method over
the estimated useful lives of the assets as follows:





Useful LifeLeasehold
      improvements
                      5
      yearsOffice
      equipment
                      5
      years




The
carrying value of property and equipment is assessed annually and when factors
indicating impairment is present, the carrying value of the property and
equipment is reduced by the amount of the impairment. The Company determines the
existence of such impairment by measuring the expected future cash flows
(undiscounted and without interest charges) and comparing such amount to the net
asset carrying value. An impairment loss, if exists, is measured as the amount
by which the carrying amount of the asset exceeds the fair value of the
asset.




Intangible
assets




Purchased
software and copyrights are initially recorded at costs and amortized on a
straight-line basis over the shorter of the contractual terms or estimated
useful economic life of 2 to 10 years.




Impairment
of long-lived assets




The
Company reviews and evaluates its long-lived assets for impairment when events
or changes in circumstances indicate that the related carrying amounts may not
be recoverable. An impairment is considered to exist if the total estimated
future cash flows on an undiscounted basis are less than the carrying amount of
the assets, including goodwill, if any. An impairment loss is measured and
recorded based on discounted estimated future cash flows. In estimating future
cash flows, assets are grouped at the lowest level for which there are
identifiable cash flows that are largely independent of future cash flows from
other asset groups.


F-11


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      2
            SUMMARIES
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)




Revenue
recognition




Revenue
is recognized when the following four criteria are met as prescribed by U.S.
Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin
No. 104 (“SAB 104”): (i) persuasive evidence of an arrangement exists,
(ii) product delivery has occurred or the services have been rendered ,
(iii) the fees are fixed or determinable, and (iv) collectibility is
reasonably assured.




Multiple-deliverable
arrangements




The
Company derives revenue from fixed-price sale contracts with customers that may
provide for the Company to deliver equipment with varied performance
specifications specific to each customer and provide the technical services for
installation, integration and testing of the equipment. Where the contract price
is inclusive of the technical services, the sale contracts include multiple
deliverables. A multiple-element arrangement is separated into more than one
unit of accounting if all of the following criteria are met:




·
            The
      delivered item(s) has value to the customer on a stand-alone
      basis;




·
            There
      is objective and reliable evidence of the fair value of the undelivered
      item(s); and




·
            If
      the arrangement includes a general right of return relative to the
      delivered item(s), delivery or performance of the undelivered item(s) is
      considered probable and substantially in the control of the
      Company.


The
Company’s multiple-element contracts generally include customer-acceptance
provisions which provide for the Company to carry out installation, test runs
and performance tests at the Company’s costs until the equipment can meet the
performance specifications within a specified period (“acceptance period”)
stated in the contracts. These contracts generally provide the customers with
the right to deduct certain percentages of the contract value as compensation or
liquidated damages from the balance payment stipulated in the contracts, if the
performance specifications cannot be met within the acceptance period. There is
generally no provision giving the customers a right of return, cancellation or
termination with respect to any uninstalled equipment.




The
delivered equipment has no standalone value to the customer until they are
installed, integrated and tested at the customer’s site by the Company up to the
performance specifications specific to each customer. In addition, under these
multiple-element contracts, the Company has not sold the equipment separately
from the installation, integration and testing services, and hence there is no
objective and reliable evidence of the fair value for each deliverable included
in the arrangement. As a result, the equipment and the technical services for
installation, integration and testing of the equipment are considered a single
unit of accounting pursuant to ASC Subtopic 605-25, Revenue Recognition –
Multiple-Element Arrangements. In addition, the arrangement generally
includes customer acceptance criteria that cannot be tested before installation
and integration at the customer’s site, hence, revenue recognition is deferred
until customer acceptance, indicated by an acceptance certificate signed off by
customer.




The
Company may also provide its customers with a warranty for, in general, one year
following the customer’s acceptance of the installed equipment. Some contracts
require that 5% to 15% of the contract price be held as retainage for quality
warranty and only due for payment by the customer upon expiry of the warranty
period. For those contracts with retainage clauses, the Company defers the
recognition of the amounts retained as revenue until expiry of the warranty
period when collectibility can reasonably be assured. The Company has not
provided for warranty costs for those contracts without retainage clauses, as
the relevant estimated costs were insignificant based on historical
experience.




Product
only




Revenue
derived from sale contracts that provide for delivery of products only is
recognized when the titles to the products pass to customers. Titles to the
products pass to the customers when the products are delivered and accepted by
the customers.




Software
sale




The
Company recognizes revenue from the delivering of data processing platform
software when the software is delivered to and accepted by the customer,
pursuant to the guidance in ASC Topic 985,   Software and in accordance
with SAB 104. Cost of software revenue include amortization of software
copyright.


F-12


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      2
            SUMMARIES
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)




Revenue
recognition (continued)




Service




The
Company recognizes revenue from provision of services when the service has been
performed, in accordance with SAB 104.




The
Company is subject to business tax at 5% and value added tax at 17% on the
revenues earned for services provided and products sold in the PRC,
respectively. The Company presents its revenue net of business tax and related
surcharges and value added tax, as well as discounts and returns. There were no
product returns for the two years ended March 31, 2010 and 2009.




Deferred
revenue and costs




Deferred
revenue represents payments received from customers on equipment delivery and
installation contracts prior to customer acceptance.  As revenues are
deferred, the related costs of equipment paid to suppliers are also deferred.
The deferred revenue and costs are recognized in the consolidated statements of
income in the period in which the criteria for revenue recognition are satisfied
as discussed above.




Research
and development expenses




Research
and development costs are charged to expense when incurred.




Advertising
and promotion costs




Advertising
and promotion costs are charged to expense when incurred.  During the
years ended March 31, 2010 and 2009, advertising and promotion costs were
insignificant.




Shipping
and handling cost




Shipping
and handling costs are charged to expense when incurred.  Shipping and
handling costs were included in selling expenses in the statements of income and
comprehensive income and amounted to $444,127 and $316,454 for the years ended
March 31, 2010 and 2009, respectively.




Income
taxes




The
Company accounts for income taxes in accordance with FASB ASC Topic
740.  ASC Topic 740 requires an asset and liability approach for
financial accounting and reporting for income taxes and allows recognition and
measurement of deferred tax assets based upon the likelihood of realization of
tax benefits in future years.  Under the asset and liability approach,
deferred taxes are provided for the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.  A valuation
allowance is provided for deferred tax assets if it is more likely than not
these items will either expire before the Company is able to realize their
benefits, or that future deductibility is uncertain.




In July
2006, the FASB issued ASC 740-10-25-5 through 740-10-25-7 and 740-10-25-13
(formerly FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes — An interpretation of FASB Statement No. 109) which became
effective for fiscal years beginning after December 15, 2006. The interpretation
prescribes a recognition threshold and a measurement attribute for the financial
statements recognition and measurement of tax positions taken or expected to be
taken in a tax return. For those benefits to be recognized, a tax position must
be more-likely-than-not to be sustained upon examination by tax authorities. The
amount recognized is measured as the largest amount of benefit that is greater
than fifty percent likely of being realized upon ultimate settlement. The
Company’s adoption of ASC 740-10-25-5 through 740-10-25-7 and 740-10-25-13 did
not result in any adjustments to the opening balance of the Company’s retained
earnings as of April 1, 2008.




Comprehensive
income




FASB ASC
Topic 220,Comprehensive
Income, establishes standards for reporting and displaying comprehensive
income and its components in the consolidated financial statements.
Comprehensive income and loss is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. Accumulated other comprehensive income arose from
foreign currency translation adjustments.


F-13


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      2
            SUMMARIES
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)




Earnings
per share




The
Company reports earnings per share in accordance with the provisions of FASB ASC
Topic 260, “Earnings per Share.” FASB ASC Topic 260 requires presentation of
basic and diluted earnings per share in conjunction with the disclosure of the
methodology used in computing such earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted average common shares outstanding during the
period. Diluted earnings per share takes into account the potential dilutive
effects of convertible securities (using the as-if converted method), and
options and warrants and their equivalents (using the treasury stock
method).




All per
share data including earnings per share has been retroactively restated to
reflect the reverse acquisition consummated on February 26, 2010 (see Note 1 for
further details), whereby the 27,354,480 shares of common stock issued by
Remediation Services, Inc. (nominal acquirer) to the Company’s shareholder
(nominal acquiree) are deemed to be the number of shares outstanding for the
periods prior to the reverse acquisition. For periods after the reverse
acquisition, the number of shares considered to be outstanding is the actual
number of shares outstanding during those periods.




The
following table is a reconciliation of the net income and the weighted average
shares used in the computation of basic and diluted earnings per share for the
periods presented:





Year
      ended March 31,2010
                
                
                2009Income
      available to common stockholders for purposes of:Basic
                
                $
                14,853,158
                
                
                $
                7,086,984Preferred
      stock dividend
                
                
                184,820
                
                
                
                -Diluted
                
                
                15,037,978
                
                
                
                7,086,984Weighted
      average number of shares:Basic
                
                
                27,541,181
                
                
                
                27,354,480Effective
      of dilutive convertible preferred stock
                
                
                660,073
                
                
                
                -Effect
      of dilutive warrants
                
                
                29,083
                
                
                
                -Diluted
                
                
                28,230,337
                
                
                
                27,354,480Earnings
      per shareBasic
                
                $
                0.54
                
                
                $
                0.26Diluted
                
                $
                0.53
                
                
                $
                0.26




The
diluted earnings per share calculation for the year ended March 31, 2010 did not
include the warrants to purchase up to 2,165,199 shares of common stock, because
their effect was anti-dilutive. No convertible securities or potential common
shares existed as of March 31, 2009.





Commitments
and contingencies




The
Company follows ASC Subtopic 450-20, Loss Contingencies in
determining its accruals and disclosures with respect to loss contingencies.
Accordingly, estimated losses from loss contingencies are accrued by a charge to
income when information available prior to issuance of the financial statements
indicates that it is probable that a liability could be been incurred and the
amount of the loss can be reasonably estimated. Legal expenses associated with
the contingency are expensed as incurred. If a loss contingency is not probable
or reasonably estimable, disclosure of the loss contingency is made in the
financial statements when it is at least reasonably possible that a material
loss could be incurred.


F-14


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      2
            SUMMARIES
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)




Foreign
currency




The
Company uses the United States dollars (“U.S. Dollar” or “US$” or “$”) for
financial reporting purposes. The subsidiaries within the Company maintain their
books and records in their respective functional currency, being the primary
currency of the economic environment in which their operations are conducted.
Assets and liabilities of a subsidiary with functional currency other than U.S.
Dollar are translated into U.S. Dollars using the applicable exchange rates
prevailing at the balance sheet date. Items on the statements of income and
comprehensive income and cash flows are translated at average exchange rates
during the reporting period. Equity accounts are translated at historical rates.
Adjustments resulting from the translation of the Company’s financial statements
are recorded as accumulated other comprehensive income.




The
Company’s PRC subsidiary maintains its books and records in Renminbi (“RMB”),
the lawful currency in the PRC, which may not be freely convertible into foreign
currencies. The exchange rates used to translate amounts in RMB into U.S.
Dollars for the purposes of preparing the consolidated financial statements are
based on the rates as published on the website of People’s Bank of China and are
as follows:-





March 31, 2010
                    
                    March 31, 2009Balance
      sheet items, except for equity accounts
                    US$1=RMB6.8263
                    
                    US$1=RMB6.8359Items
      in statements of income and cash flows
                    US$1=RMB6.8290
                    
                    US$1=RMB6.8670




No
representation is made that the RMB amounts could have been, or could be,
converted into U.S. dollars at the above rates.




The value
of RMB against U.S. dollars and other currencies may fluctuate and is affected
by, among other things, changes in China’s political and economic conditions.
Any significant revaluation of RMB may materially affect the Company’s financial
condition in terms of U.S. dollar reporting.




Financial
instruments




The
Company values its financial instruments as required by FASB ASC 320-12-65
(formerly SFAS No. 107, “Disclosures about Fair Value of Financial
Instruments”). The estimated fair value amounts have been determined by the
Company, using available market information or other appropriate valuation
methodologies. However, considerable judgment is required in interpreting market
data to develop estimates of fair value. Consequently, the estimates are not
necessarily indicative of the amounts that could be realized or would be paid in
a current market exchange.




The
Company’s financial instruments primarily consist of cash and cash equivalents,
restricted cash, trading securities, accounts receivable, other receivables,
accounts payable, other payables and loans due to shareholders.




As of the
balance sheet dates, the estimated fair values of the financial instruments were
not materially different from their carrying values as presented due to the
short maturities of these instruments and that the interest rates on the
borrowings approximate those that would have been available for loans of similar
remaining maturity and risk profile at respective year ends.


F-15


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      2
            SUMMARIES
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)




Fair
value measurements




ASC Topic
820, Fair Value Measurement
and Disclosures, defines fair value as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. This topic also
establishes a fair value hierarchy which requires classification based on
observable and unobservable inputs when measuring fair value. There are three
levels of inputs that may be used to measure fair value:




Level 1-
            Quoted
      prices in active markets for identical assets or
    liabilities.




Level 2-
            Observable
      inputs other than Level 1 prices such as quoted prices for similar assets
      or liabilities; quoted prices in markets that are not active; or other
      inputs that are observable or can be corroborated by observable market
      data for substantially the full term of the assets or
      liabilities.




Level 3-
            Unobservable
      inputs that are supported by little or no market activity and that are
      significant to the fair value of the assets or
  liabilities.




Determining
which category an asset or liability falls within the hierarchy requires
significant judgment. The Company evaluates its hierarchy disclosures each
quarter.




The
carrying values of cash and cash equivalents, trade and other receivables and
payables, and short-term debts approximate fair values due to their short
maturities.




Assets
and liabilities measured at fair value on a recurring basis are summarized as
follows:


As of March 31, 2010Fair value measurement using inputs
                                                            
                                                            
                                                            CarryingFinancial instruments
                                                            
                                                            Level 1
                                                            
                                                            
                                                            Level 2
                                                            
                                                            
                                                            Level 3
                                                            
                                                            
                                                            amountShort-term
      investment:Marketable
      equity securities
                                                            
                                                            $
                                                            11,592
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            11,592Total
                                                            
                                                            $
                                                            11,592
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            11,592
 
 As of March 31, 2009Fair value measurement using inputs
                                                            
                                                            
                                                            CarryingFinancial instruments
                                                            
                                                            Level 1
                                                            
                                                            
                                                            Level 2
                                                            
                                                            
                                                            Level 3
                                                            
                                                            
                                                            amountShort-term
      investment:Marketable
      equity securities
                                                            
                                                            $
                                                            29,380
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            29,380Total
                                                            
                                                            $
                                                            29,380
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            -
                                                            
                                                            
                                                            $
                                                            29,380





There was
no asset or liability measured at fair value on a non-recurring basis as of
March 31, 2010 and 2009.


F-16


LIANDI
CLEAN TECHNOLOGY IN


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      2
            SUMMARIES
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)




Recent
accounting pronouncements




In June
2009, the FASB established the FASB Accounting Standards CodificationTM (ASC)
as the single source of authoritative U.S generally accepted accounting
principles (GAAP) recognized by the FASB to be applied to nongovernmental
entities. Rules and interpretive releases of the Securities and Exchange
Commission (“SEC”) under authority of federal securities laws are also sources
of authoritative GAAP for SEC registrants. The ASC superseded all previously
existing non-SEC accounting and reporting standards, and any prior sources of
U.S. GAAP not included in the ASC or grandfathered are not authoritative. New
accounting standards issued subsequent to June 30, 2009 are communicated by the
FASB through Accounting Standards Updates (ASUs). The ASC did not change current
U.S. GAAP but changes the approach by referencing authoritative literature by
topic (each a “Topic”) rather than by type of standard. This ASC is effective
for interim and annual periods ending after September 15, 2009. Adoption of the
ASC did not have a material impact on the Company’s Consolidated Financial
Statements, but references in the Company’s Notes to Consolidated Financial
Statements to former FASB positions, statements, interpretations, opinions,
bulletins or other pronouncements are now presented as references to the
corresponding Topic in the ASC.




Effective
April 1, 2009, the Company adopted FASB ASC 350-30 and ASC 275-10-50 (formerly
FSP FAS 142-3, Determination
of the Useful Life of Intangible Assets), which amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible
Assets. The Company will apply ASC 350-30 and ASC 275-10-50 prospectively
to intangible assets acquired subsequent to the adoption date.  The
adoption of these revised provisions had no impact on the Company’s Consolidated
Financial Statements.




Effective
April 1, 2009, the Company adopted FASB ASC 815-10-65 (formerly SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities), which amends and expands previously
existing guidance on derivative instruments to require tabular disclosure of the
fair value of derivative instruments and their gains and losses., This ASC also
requires disclosure regarding the credit-risk related contingent features in
derivative agreements, counterparty credit risk, and strategies and objectives
for using derivative instruments. The adoption of this ASC did not have a
material impact on the Company’s Consolidated Financial
Statements.




Upon initial adoption of
SFAS 157 onApril 1, 2008, the
Company adopted FASB ASC 820-10 (formerly FSP FAS 157-2, Effective Date of FASB Statement
157), which deferred the provisions of previously issued fair value
guidance for nonfinancial assets and liabilities to the first fiscal period
beginning after November 15, 2008. Deferred nonfinancial assets and liabilities
include items such as goodwill and other non-amortizable intangibles. Effective
April 1, 2009, the Company adopted the fair value guidance for nonfinancial
assets and liabilities. The adoption of FASB ASC 820-10 did not have a material
impact on the Company’s Consolidated Financial Statements.




Effective
April 1, 2009, the Company adopted FASB ASC 810-10-65 (formerly SFAS 160, Non-controlling Interests in
Consolidated Financial Statements — an amendment of ARB No. 51), which
amends previously issued guidance to establish accounting and reporting
standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a non-controlling interest in
a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as equity.
Among other requirements, this Statement requires that the consolidated net
income attributable to the parent and the non-controlling interest be clearly
identified and presented on the face of the consolidated income
statement.  The adoption of the provisions in this ASC did not have a
material impact on the Company’s Consolidated Financial Statements.




Effective
April 1, 2009, the Company adopted FASB ASC 805-10, (formerly SFAS 141R, Business Combinations), which
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any non-controlling interest in an acquiree and the
goodwill acquired.  In addition, the provisions in this ASC require
that any additional reversal of deferred tax asset valuation allowance
established in connection with fresh start reporting on January 7, 1998 be
recorded as a component of income tax expense rather than as a reduction to
the goodwill established in connection with the fresh start reporting. The
Company will apply ASC 805-10 to any business combinations subsequent to
adoption.


F-17


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      2
            SUMMARIES
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)




Recent
accounting pronouncements (continued)




Effective
April 1, 2009, the Company adopted FASB ASC 805-20 (formerly FSP FAS 141R-1,
Accounting for Assets Acquired
and Liabilities Assumed in a Business Combination That Arise from
Contingencies), which amends ASC 805-10 to require that an acquirer
recognize at fair value, at the acquisition date, an asset acquired or a
liability assumed in a business combination that arises from a contingency if
the acquisition-date fair value of that asset or liability can be determined
during the measurement period. If the acquisition-date fair value of such an
asset acquired or liability assumed cannot be determined, the acquirer should
apply the provisions of ASC Topic 450, Contingences, to determine
whether the contingency should be recognized at the acquisition date or after
such date. The adoption of ASC 805-20 did not have a material impact on the
Company’s Consolidated Financial Statements.




Effective
July 1, 2009, the Company adopted FASB ASC 825-10-65 (formerly FSP FAS 107-1 and
Accounting Principles Board 28-1,Interim Disclosures about Fair
Value of Financial Instruments), which amends previous guidance to
require disclosures about fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial
statements. The adoption of FASB ASC 825-10-65 did not have a material impact on
the Company’s Consolidated Financial Statements.




Effective
July 1, 2009, the Company adopted FASB ASC 320-10-65 (formerly FSP FAS 115-2 and
FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments). Under ASC 320-10-65,
an other-than-temporary impairment must be recognized if the Company has the
intent to sell the debt security or the Company is more likely than not will be
required to sell the debt security before its anticipated recovery. In addition,
ASC 320-10-65 requires impairments related to credit loss, which is the
difference between the present value of the cash flows expected to be collected
and the amortized cost basis for each security, to be recognized in earnings
while impairments related to all other factors to be recognized in other
comprehensive income. The adoption of ASC 320-10-65 did not have a material
impact on the Company’s Consolidated Financial Statements.




Effective
July 1, 2009, the Company adopted FASB ASC 820-10-65 (formerly FSP FAS 157-4,
Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly), which provides guidance on how to determine the fair value of assets
and liabilities when the volume and level of activity for the asset or liability
has significantly decreased when compared with normal market activity for the
asset or liability as well as guidance on identifying circumstances that
indicate a transaction is not orderly. The adoption of ASC 820-10-65 did not
have a material impact on the Company’s Consolidated Financial
Statements.




Effective
July 1, 2009, the Company adopted FASB ASC 855-10 (formerly SFAS 165, Subsequent Events), which
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date, but before financial statements are issued
or are available to be issued. Adoption of ASC 855-10 did not have a material
impact on the Company’s Consolidated Financial Statements.




Effective
September 1, 2009, the Company adopted ASC 715, Compensation – Retirement Benefits(formerly FASB FSP FAS 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets), which expands the disclosure
requirements about plan assets for defined benefit pension plans and
postretirement plans. The adoption of these disclosure requirements has had no
material effect on the Company’s Consolidated Financial Statements.




In the
quarter ended December 31, 2009, the Company adopted ASC Update No. 2009-05,
which provides guidance on measuring the fair value of liabilities under FASB
ASC 820 (formerly SFAS 157, Fair Value
Measurements).  . The adoption of this Update has had no
material effect on the Company’s Consolidated Financial
Statements.


F-18


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      2
            SUMMARIES
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)




Recent
accounting pronouncements (continued)




In
January 2010, the FASB issued ASU No. 2010-05—Compensation—Stock Compensation
(Topic 718): Escrowed Share Arrangements and the Presumption of
Compensation. This Update simply codifies EITF Topic No. D-110, “Escrowed
Share Arrangements and the Presumption of Compensation” dated June 18, 2009. ASU
No. 2010-05 includes the SEC staff announcement at the EITF meeting that
clarified SEC staff views on overcoming the presumption that for certain
shareholders escrowed share arrangements represent compensation. Historically,
the SEC staff has expressed the view that an escrowed share arrangement
involving the release of shares to certain shareholders based on
performance-related criteria is presumed to be compensatory. The SEC staff
clarified that entities should consider the substance of the transaction in
evaluating whether the presumption of compensation may be overcome, including
whether the transaction was entered into for a reason unrelated to employment,
such as to facilitate a financing transaction. In that situation, the staff
generally believes that the Escrowed Shares should be reflected as a discount in
the allocation of proceeds. The Company has applied the guidance in ASU
No. 2010-05 to the escrowed share arrangement in conjunction with the
Private Placement as further described in Note 13.




New
accounting pronouncement to be adopted




In June
2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets – an amendment of FASB Statement No. 140, (codified
by ASU No. 2009-16 issued in December 2009). SFAS No. 166 limits the
circumstances in which a financial asset should be derecognized when the
transferor has not transferred the entire financial asset by taking into
consideration the transferor’s continuing involvement. The standard requires
that a transferor recognize and initially measure at fair value all assets
obtained (including a transferor’s beneficial interest) and liabilities incurred
as a result of a transfer of financial assets accounted for as a sale. The
concept of a qualifying special-purpose entity is removed from SFAS
No. 140, “Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities,” along with the exception from applying FIN
46(R), Consolidation of
Variable Interest Entities. The standard is effective for the first
annual reporting period that begins after November 15, 2009 (the Company’s
fiscal ending March 31, 2011). Earlier application is prohibited. It is expected
the adoption of this Statement will have no material effect on the Company’s
Consolidated Financial Statements.




In June
2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation
No. 46(R), (codified by ASU No. 2009-17 issued in December 2009).
The standard amends FIN No. 46(R) to require a company to analyze whether
its interest in a variable interest entity (“VIE”) gives it a controlling
financial interest. A company must assess whether it has an implicit financial
responsibility to ensure that the VIE operates as designed when determining
whether it has the power to direct the activities of the VIE that significantly
impact its economic performance. Ongoing reassessments of whether a company is
the primary beneficiary are also required by the standard. SFAS No. 167
amends the criteria to qualify as a primary beneficiary as well as how to
determine the existence of a VIE. The standard also eliminates certain
exceptions that were available under FIN No. 46(R). This Statement will be
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009 (the Company’s fiscal ending
March 31, 2011). Earlier application is prohibited. Comparative disclosures will
be required for periods after the effective date. It is expected the adoption of
this Statement will have no material effect on the Company’s Consolidated
Financial Statements.


F-19


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      2
            SUMMARIES
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)




New
accounting pronouncement to be adopted (continued)




In
October 2009, the FASB concurrently issued the following ASC Updates
(ASU):




·
            ASU
      No. 2009-13—Revenue
      Recognition (ASC Topic 605): Multiple-Deliverable Revenue Arrangements(formerly EITF Issue No. 08-1).  ASU No. 2009-13 modifies
      the revenue recognition guidance for arrangements that involve the
      delivery of multiple elements, such as product, software, services or
      support, to a customer at different times as part of a single revenue
      generating transaction.  This standard provides principles and
      application guidance to determine whether multiple deliverables exist, how
      the individual deliverables should be separated and how to allocate the
      revenue in the arrangement among those separate deliverables. The standard
      also expands the disclosure requirements for multiple deliverable revenue
      arrangements.




·
            ASU
      No. 2009-14—Software
      (ASC Topic 985): Certain Revenue Arrangements That Include Software
      Elements(formerly EITF Issue No. 09-3).ASU No. 2009-14
      removes tangible products from the scope of software revenue recognition
      guidance and also provides guidance on determining whether software
      deliverables in an arrangement that includes a tangible product, such as
      embedded software, are within the scope of the software revenue
      guidance.




ASU No.
2009-13 and ASU No. 2009-14 should be applied on a prospective basis for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010, with earlier application permitted. Alternatively, an
entity can elect to adopt these standards on a retrospective basis, but both
these standards must be adopted in the same period using the same transition
method. The Company expects to apply these ASU Updates on a prospective basis
for revenue arrangements entered into or materially modified beginning April 1,
2011.  The Company is currently evaluating the potential impact these
ASC Updates may have on its financial position and results of
operations.




In
January 2010, the FASB issued the following ASC Updates:




·
            ASU
      No. 2010-01—Equity
      (Topic 505): Accounting for Distributions to Shareholders with Components
      of Stock and Cash. This Update clarifies that the stock portion of
      a distribution to shareholders that allows them to elect to receive cash
      or stock with a potential limitation on the total amount of cash that all
      shareholders can elect to receive in the aggregate is considered a share
      issuance that is reflected in EPS prospectively and is not a stock
      dividend for purposes of applying Topics 505 and 260 (Equity and Earnings
      Per Share). The amendments in this Update are effective for interim and
      annual periods ending on or after December 15, 2009 with retrospective
      application.





·
            ASU
      No. 2010-02—Consolidation (Topic 810):
      Accounting and Reporting for Decreases in Ownership of a
      Subsidiary. This Update amends Subtopic 810-10 and related guidance
      to clarify that the scope of the decrease in ownership provisions of the
      Subtopic and related guidance applies to (i) a subsidiary or group of
      assets that is a business or nonprofit activity; (ii) a subsidiary that is
      a business or nonprofit activity that is transferred to an equity method
      investee or joint venture; and (iii) an exchange of a group of assets that
      constitutes a business or nonprofit activity for a noncontrolling interest
      in an entity, but does not apply to: (i) sales of in substance real
      estate; and (ii) conveyances of oil and gas mineral rights. The amendments
      in this Update are effective beginning in the period that an entity adopts
      FAS 160 (now included in Subtopic
810-10).





·
            ASU
      No. 2010-06—Fair Value
      Measurements and Disclosures (Topic 820): Improving Disclosures about Fair
      Value Measurements.  This Update amends Subtopic 820-10
      that requires new disclosures about transfers in and out of Levels 1 and 2
      and activity in Level 3 fair value measurements. This Update also amends
      Subtopic 820-10 to clarify certain existing disclosures. The new
      disclosures and clarifications of existing disclosures are effective for
      interim and annual reporting periods beginning after December 15, 2009,
      except for the disclosures about purchases, sales, issuances, and
      settlements in the roll forward of activity in Level 3 fair value
      measurements, which are effective for fiscal years beginning after
      December 15, 2010.




The
Company expects that the adoption of the above Updates issued in January 2010
will not have any significant impact on its financial position and results of
operations.


F-20


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      2
            SUMMARIES
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)




New
accounting pronouncement to be adopted (continued)




In April
2010, the FASB issued ASU No. 2010-13—Compensation—Stock Compensation
(Topic 718),which addresses the classification of an employee share-based
payment award with an exercise price denominated in the currency of a market in
which the underlying equity security trades.This
Update provides amendments to Topic 718 to clarify that an employee share-based
payment award with an exercise price denominated in the currency of a market in
which a substantial portion of the entity’s equity securities trades should not
be considered to contain a condition that is not a market, performance, or
service condition. Therefore, an entity would not classify such an award as a
liability if it otherwise qualifies as equity. The amendments in this Update are
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2010. The Company expects that the adoption
of the amendments in this Update will not have any significant impact on its
financial position and results of operations.




In April
2010, the FASB issued ASU No. 2010-17—Revenue Recognition—Milestone Method
(Topic 605), which provide guidance on the criteria that should be met
for determining whether the milestone method of revenue recognition is
appropriate. A vendor can recognize consideration that is contingent upon
achievement of a milestone in its entirety as revenue in the period in which the
milestone is achieved only if the milestone meets all criteria to be considered
substantive. A milestone should be considered substantive in its entirety. An
individual milestone may not be bifurcated. The amendments in this Update are
effective on a prospective basis for milestones achieved in fiscal years, and
interim periods within those years, beginning on or after June 15, 2010. The
Company expects that the adoption of the amendments in this Update will not have
any significant impact on its financial position and results of
operations.




Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the Company’s Consolidated Financial
Statements upon adoption.




NOTE
      3
            RESTRICTED
      CASH




Restricted
cash as of March 31, 2010 and 2009 represented the Company’s bank deposits held
as collaterals for the Company’s credit facilities as discussed in Note
12.




NOTE
      4
            ACCOUNTS
      RECEIVABLE, NET





As
      of March 31,2010
                                  
                                  
                                  2009Accounts
      receivable
                                  
                                  $
                                  2,295,231
                                  
                                  
                                  $
                                  15,054,940Less:
      Allowance for doubtful debts
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -$
                                  2,295,231
                                  
                                  
                                  $
                                  15,054,940




As of
March 31, 2010 and 2009, the balance of accounts receivable included $1,297,457
and $nil billed but not paid by customers under retainage provision in
contracts.




Based on
the Company’s assessment of collectibility, there has been no allowance for
doubtful accounts recognized during the years ended March 31, 2010 and
2009.


F-21


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      5
            INVENTORIES





As
      of March 31,2010
                          
                          
                          2009Finished
      goods, consisting of parts
                          
                          $
                          61,046
                          
                          
                          $
                          103,197Less:
      Allowance for stock obsolescence
                          
                          
                          (30,943
                          )
                          
                          
                          (30,998
                          )$
                          30,103
                          
                          
                          $
                          72,199




NOTE
      6
            PREPAID
      EXPENSES AND DEPOSITS





As
      of March 31,2010
                
                
                2009Prepaid
      operating expenses
                
                $
                145,544
                
                
                $
                1,534Tender
      deposits
                
                
                205,908
                
                
                
                150,509Rental
      deposits
                
                
                70,947
                
                
                
                66,684Prepayment
      to suppliers
                
                
                -
                
                
                
                6,488,056Advances
      to staff for normal business purposes
                
                
                234,858
                
                
                
                105,632Total
                
                $
                657,257
                
                
                $
                6,812,415




Prepayment
to suppliers as of March 31, 2010 represented deposits or advance payments for
the purchases of equipment for sale to customers and was utilized in the year
ended March 31, 2010.




NOTE
      7
            OTHER
      RECEIVABLES





As
      of March 31,2010
                                        
                                        
                                        2009Other
      receivables from unrelated entities, net of $nil allowance
                                        
                                        $
                                        3,416,284
                                        
                                        
                                        $
                                        15,160,782Less:
      Allowance for doubtful debts
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -$
                                        3,416,284
                                        
                                        
                                        $
                                        15,160,782




Other
receivables from unrelated entities represented temporary loans advanced to
customers, which were unsecured, non-interest bearing and repayable on
demand.




NOTE
      8
            PLEDGED
      TRADING SECURITIES





As
      of March 31,2010
                                    
                                    
                                    2009Marketable
      equity securities
                                    
                                    
                                    11,592
                                    
                                    
                                    
                                    29,380$
                                    11,592
                                    
                                    
                                    $
                                    29,380




As of
March 31, 2010 and March 31, 2009, all of the Company’s trading securities were
pledged as collaterals for the Company’s credit facilities (see Note 12).
Marketable equity securities are reported at fair value based on quoted market
prices in active (Level 1 inputs) markets, respectively, with gains or losses
resulting from changes in fair value recognized currently in
earnings.


F-22


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      9
            PROPERTY
      AND EQUIPMENT





As
      of March 31,2010
                
                
                2009Office
      equipment
                
                $
                85,607
                
                
                $
                49,909Leasehold
      improvements
                
                
                127,970
                
                
                
                119,383Total
      cost
                
                
                213,577
                
                
                
                169,292Less:
      Accumulated depreciation
                
                
                (61,917
                )
                
                
                (23,559
                )Net
                
                $
                151,660
                
                
                $
                145,733




Depreciation
expenses in aggregate for the years ended March 31, 2010 and 2009 were $38,449
and $23,474 respectively.




NOTE
      10
            INTANGIBLE
      ASSETS





As
      of March 31,2010
                                                  
                                                  
                                                  2009Computer
      software and program
                                                  
                                                  $
                                                  19,923
                                                  
                                                  
                                                  $
                                                  5,852Software
      copyright
                                                  
                                                  
                                                  5,976,915
                                                  
                                                  
                                                  
                                                  5,968,489Less:
      Accumulated amortization
                                                  
                                                  
                                                  (804,100
                                                  )
                                                  
                                                  
                                                  (199,681
                                                  )Net
                                                  
                                                  $
                                                  5,192,738
                                                  
                                                  
                                                  $
                                                  5,774,660




In
December 2008, the Company’s subsidiary, Beijing JianXin, purchased a software
copyright on data processing platform software for application in petrochemical
productions pursuant to an agreement dated October 1, 2008 from a company
unaffiliated to the Company at the time of the agreement. The agreement provides
that the purchase price shall be based on the valuation of RMB40,800,000 (or
$5,941,459). The agreement stipulates that the seller shall provide assistance
for the registration of the software copyright in the name of Beijing JianXin.
The agreement also provides that the seller shall dismiss all human resources
for the business activities related to the software from the date Beijing
JianXin is granted the software copyright and at the same time, provide
assistance for Beijing JianXin to re-employ the necessary staff from the seller
to ensure a smooth transitioning of the activities related to the software. The
agreement provides for Beijing JianXin to pay the purchase price within 1 year
from the date it obtains the software copyright, but no later than March 31,
2010. The purchase price for the software copyright was fully paid before March
31, 2010.




This
software copyright has been registered with the National Copyright
Administration of the People’s Republic of China in the name of Beijing JianXin
and is protected under the relevant copyright law of the PRC for 50 years from
November 11, 2008, the date of first publication of the software. This software
copyright is amortized over its estimated useful life of ten years using the
straight-line method.




Amortization
expenses for the years ended March 31, 2010 and 2009 were $603,892 and $198,777
respectively.


F-23


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      11
            OTHER
      PAYABLES AND ACCRUED EXPENSES





As
      of March 31,2010
                
                
                2009Business
      tax and value added tax payable
                
                $
                2,003,706
                
                
                $
                1,173,497Accrued
      operating expenses
                
                
                1,376,358
                
                
                
                47,938Other
      payables
                
                
                55,501
                
                
                
                54,276Accrued
      welfare
                
                
                61,047
                
                
                
                -Total
                
                $
                3,496,612
                
                
                $
                1,275,711




NOTE
      12
            CREDIT
      FACILITIES




As of
March 31, 2010, the Company had available banking facilities (“General
Facilities”), which consisted of overdraft, guarantee line and import trade
finance and facilities for negotiation of export documentary credit discrepant
bills against letters of indemnity, up to an aggregate amount of HK$62.3 million
(equivalent to approximately $8 million). Collaterals for the General Facilities
include the Company’s bank deposits classified as restricted cash and trading
securities as described in Notes 3 and 8, respectively, unlimited guarantee from
Mr. Jianzhong Zuo (CEO and Chairman of the Company), a standby letter of credit
of not less than HK$45 million (or approximately $5.8) issued by a bank which is
in turn guaranteed by SJI Inc. (the holding company of SJ Asia Pacific Ltd., a
stockholder of the Company) and undertaking from Hua Shen HK to maintain a
tangible net worth at not less than HK$5 million (or approximately $644
thousand).




As of
March 31, 2010, there were outstanding import shipping guarantees of $2,529,614
issued by the banks on behalf of the Company under the General Facilities. There
was no other borrowing under the General Facilities as of March 31,
2010.




On August
6, 2009, the Company obtained a banking facility for import facilities up to
HK$6 million (equivalent to approximately $774 thousand) under a Special Loan
Guarantee Scheme sponsored and guaranteed by the Government of the Hong Kong
Special Administrative Region (“Government Sponsored Facility”). Collaterals for
the Government Sponsored Facility include a guarantee for HK$6,000,000 from
China LianDi. As of March 31, 2010, there was no borrowing under the Government
Sponsored Facility.


F-24


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      13
            SHAREHOLDERS’
      EQUITY




Private
Placement




On
February 26, 2010 and immediately following the Share Exchange mentioned in Note
1, the Company completed a private placement transaction (the “Private
Placement”) pursuant to a securities purchase agreement with certain investors
(collectively, the “Investors”) and sold 787,342 units (the “Units”) at a
purchase price of $35 per Unit, consisting of, in the aggregate, (a) 7,086,078
shares of Series A convertible preferred stock, par value $0.001 per share (the
“Series A Preferred Stock”) convertible into the same number of shares of common
stock, (b) 787,342 shares of common stock (the “Issued Common Shares”), (c)
three-year Series A Warrants (the “Series A Warrants”) to purchase up to
1,968,363 shares of common stock, at an exercise price of $4.50 per share (the
“Series A Warrant Shares”) for a three-year period, and (d) three-year Series B
Warrants (the “Series B Warrants” and, together with the Series A Warrants, the
“Warrants”) to purchase up to 1,968,363 shares of common stock, at an exercise
price of $5.75 per share (the “Series B Warrant Shares” and, together with the
Series A Warrant Shares, the “Warrant Shares”) for a three-year period. The
Company also issued to the placement agent in the Private Placement (i)
warrants to purchase 787,382 shares of common stock at an exercise price of
$3.50, (ii) Series A Warrants to purchase 196,836 shares of common stock, and
(iii) Series B Warrants to purchase 196,836 shares of common stock, which expire
in three years on February 26, 2013. The
Company received aggregate gross proceeds of approximately $27.56 million from
the Private Placement.




Share
Transfer Arrangement and Escrowed Shares Arrangement




In
consideration of the consulting services provided leading to the Private
Placement, on February 10, 2010, the Company’s major stockholders, SJ Asia
Pacific Limited and LianDi Energy transferred 820,634 shares of China LianDi to
TriPoint Capital Advisors, LLC.




In
conjunction with the Private Placement, the Company also entered into a make
good escrow agreement with the Investors (the “Securities Escrow Agreement”),
pursuant to which LianDi Energy delivered into an escrow account 1,722,311
shares of common stock to be used as a share escrow for the achievement of a
Fiscal Year 2011 net income performance threshold of $20.5 million. With respect
to the 2011 performance year, if the Company achieves less than 95% of the 2011
performance threshold, then the Escrow Shares for such year will be delivered to
the Investors in the amount of 86,115.55 shares (rounded up to the nearest whole
share and pro rata based on the number of shares of Series A Preferred Stock
owned by such Investor at such date) for each full percentage point by which
such threshold was not achieved up to a maximum of 1,722,311 shares. Any Escrow
Shares not delivered to any Investor because such Investor no longer holds
shares of Series A Preferred Stock or Conversion Shares, or because the 2011
performance threshold was met, shall be returned to the Principal
Stockholder.




For the
purposes of the Securities Escrow Agreement, net income is defined in accordance
with US GAAP and reported by the Company in the audited financial statements for
fiscal year ended 2011; provided, however, that net income for fiscal year ended
2011 shall be increased by any non-cash charges incurred (i) as a result of the
Private Placement, including without limitation, as a result of the issuance
and/or conversion of the Series A Preferred Stock, and the issuance and/or
exercise of the Warrants, (ii) as a result of the release of the Escrow Shares
to the Principal Stockholder and/or the Investors, as applicable, pursuant to
the terms of the Securities Escrow Agreement, (iii) as a result of the issuance
of ordinary shares of the Principal Stockholder to its PRC shareholders, upon
the exercise of options granted to such PRC shareholders by the Principal
Stockholder, as of the date of the Securities Escrow Agreement, (iv) as a result
of the issuance of Warrants to any placement agent and its designees in
connection with the Private Placement, (v) the exercise of any Warrants to
purchase common stock outstanding and (vi) the issuance under any performance
based equity incentive plan that the Company adopt. Net income will also be
increased to adjust for any cash or non-cash charges resulting from the payment
of dividends on the Series A Preferred Stock in connection with the Private
Placement.




The
Company has evaluated the circumstances under which the Company’s major
stockholders transferred 820,634 shares of  China LianDi to the
consultant and concluded that the share transfer arrangement was entered into
for consulting services related to facilitating the Private Placement. The
Company has also evaluated the terms of the Securities Escrow Agreement based on
the guidance provided in ASC 718-10-S99. The Company concluded that because the
Escrowed Shares would be released to the Company’s principal stockholder or
distributed to the investors without regard to the continued employment of any
of the Company’s directors of officers, the Securities Escrow Agreement is in
substance an inducement to facilitate the Private Placement, rather than as
compensatory. As such, the Company has accounted for the share transfer
arrangement with the consultant and the escrowed share arrangement under the
Securities Escrow Agreement according to their nature and reflected them as a
reduction of the proceeds allocated to the newly issued securities in the
Private Placement, based on the aggregate fair value of 820,634 shares and the
1,722,311 shares of common stock at February 26, 2010,
respectively.


F-25


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      13
            SHAREHOLDERS’
      EQUITY (CONTINUED)




Allocation
of Proceeds in the Private Placement




In
accordance with the guidance provided in ASC 470-20-30, the Company has first
allocated the proceeds from the Private Placement between the Issued Common
Shares, the Series A Preferred Stock and the Warrants issued in the Private
Placement proportionately based on their estimated fair values as of the Closing
Date of the Private Placement.  Then the guidance provided in ASC
470-20-30-5 has been applied to the amount allocated to the convertible Series A
Preferred Stock, and the effective conversion price has been used, to measure
the intrinsic value, if any, of the embedded conversion option.




The
Company’s common stock was not publicly traded before and as of the Closing Date
of the Private Placement. The Company has determined that its common stock had a
fair value of $2.86 per share at February 26, 2010 based on a retrospective
valuation. The valuation has been prepared consistent with the methods outlined
in the American Institute of Certified Public Accountants Practice Aids,
“Valuation of Privately-Held Company Equity Securities Issued as Compensation”
and based on the market approach using the Guideline Publicly Trade Company
(“GPTC”) method.  Under the GPTC method, the Company applied the (i)
price-to-earnings before interest, taxes, depreciation and amortization
(EBITDA); (ii) price-to-earnings before interest and taxes (EBIT); and (iii)
price-to-net assets multiples of six comparable public entities generated from
the financial figures from trailing 12 months preceding February 26, 2010, to
the Company, subjected to a discount to adjust for the lack of marketability of
the Company’s common stock.




The
intrinsic value of the embedded conversion feature has been calculated by
comparing the effective conversion price determined based on the proceeds from
the Private Placement allocated to the Series A Preferred Stock, and the fair
value of the Company’s common stock at the commitment date. The effective
conversion price of the Series A Preferred Stock was determined to be higher
than the fair value of the common stock at February 26, 2010. Accordingly, the
embedded conversion feature did not have an intrinsic value at February 26,
2010.




The fair
values of the warrants issued in the Private Placement were determined using the
binomial option pricing model with the following assumptions:




Expected
      term (years):
              3Dividend
      yield:
              0.00%Expected
      volatility:
              56.07%Risk-free
      interest rate:
              1.323%




As the
Company’s stock was not publicly traded, historical volatility information is
not available. In accordance with the guidance in ASC 718-10-30-2, the Company
identified six similar public entities for which share and option price
information was available, and considered the historical volatilities of those
public entities’ share prices in calculating the expected volatility appropriate
to the Company (the calculated value).




The
risk-free rate of return reflects the interest rate for United States Treasury
Note with similar time-to-maturity to that of the Warrants.




The
following table sets out the allocation of the proceeds from the Private
Placement:





Cash
      proceeds of the Private Placement (net of fees and
    expenses)
                      
                      $
                      24,552,378Reduction
      for share transfer arrangement and escrowed share
    arrangement
                      
                      
                      (7,272,824
                      )Net
      proceeds allocated to securities issued in the Private
      Placement
                      
                      $
                      17,279,554Allocated
      to:Issued
      Common Shares
                      
                      $
                      1,309,380Series
      A Preferred Stock
                      
                      
                      14,059,018Warrants
                      
                      
                      1,911,156$
                      17,279,554


F-26


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      13
            SHAREHOLDERS’
      EQUITY (CONTINUED)




Preferred
Stock




The Board
of the Company is authorized, without further action by the shareholders, to
issue, from time to time, up to 25,000,000 shares of preferred stock in one or
more classes or series. Similarly, the Board is authorized to fix or alter the
designations, powers, preferences, and the number of shares which constitute
each such class or series of preferred stock. Such designations, powers or
preferences may include, without limitation, dividend rights (and whether
dividends are cumulative), conversion rights, if any, voting rights (including
the number of votes, if any, per share), redemption rights (including sinking
fund provisions, if any), and liquidation preferences of any unissued shares or
wholly unissued series of preferred stock.




The
Company has designated one series of preferred stock as the Series A Preferred
Stock, of which the Company issued 7,086,078 shares upon the closing of the
Private Placement described above, all of which remained issued and outstanding
as of March 31, 2010. The following are the principal terms of the Series A
Preferred Stock:




Rank.The Series A Preferred
Stock ranks senior to the Company’s common stock, but junior to all indebtedness
of the Company.




Dividend.Holders of the
Series A Preferred Stock is entitled to a cumulative dividend at an annual rate
of 8%, payable quarterly, at the Company’s option, in cash or in additional
shares of Series A Preferred Stock.




Voting Rights.The Series A
Preferred Stock has class voting rights such that the Company, prior to taking
certain corporate actions (including certain issuances or redemptions of its
securities or changes in its organizational documents), is required obtain the
affirmative vote or consent of the holders of a majority of the shares of the
Series A Preferred Stock then issued and outstanding. The Series A Preferred
Stock has no other voting rights with the common stock or other equity
securities of the Company.




Liquidation Preference. The
Series A Preferred Stock has a preference over the Company’s common stock on the
Company’s liquidation, dissolution or winding up equal to $3.50 per share of the
Series A Preferred Stock plus any accrued but unpaid dividends thereon, whether
or not declared, together with any other dividends declared but unpaid thereon,
as of the date of liquidation (collectively, the “Series A Liquidation
Preference Amount”).




Voluntary Conversion. The
Series A Preferred Stock is convertible at any time after issuance, at the
option of the holder, into a number of shares of the Company’s common stock
equal to the quotient of (i) the Series A Liquidation Preference Amount of the
shares of the Series A Preferred Stock dividend by (ii) the conversion
price.




Mandatory Conversion. The
Series A Preferred Stock automatically converts into shares of the Company’s
common stock at the then applicable conversion ratio, at the earlier to occur of
the following: (i) the twenty-four (24) month anniversary of the Closing Date,
and (ii) such time that the volume weighted average price of the Company’s
common stock is no less than $5.00 for a period of ten (10) consecutive trading
days with the daily volume of the common stock equal to at least 50,000 shares
per day.


F-27


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      13
            SHAREHOLDERS’
      EQUITY (CONTINUED)




Preferred
Stock




Conversion Price. The
conversion price is $3.50 subject to adjustments as follows:




(i)
            customary
      adjustment for corporate events such as stock splits and combination,
      dividends and distribution, reclassification, exchange or substitution,
      reorganization, merger, consolidation or sale of assets,
    and




(ii)
            anti-dilution
      adjustment for a period of 12 months following the effective date of the
      registration statement filed under the Registration Rights Agreement (as
      described in Note 18). In the event that the Company issues or sells any
      additional shares of common stock at a price per share less than the
      then-applicable conversion price or without consideration, then the
      conversion price upon each such issuance shall be reduced to that price
      (rounded to the nearest cent) determined by multiplying the conversion
      price by a fraction: (1) the numerator of which shall be equal to the sum
      of (A) the number of shares of common stock outstanding immediately prior
      to the issuance of such additional shares of common stock plus (B) the
      number of shares of common stock (rounded to the nearest whole share)
      which the aggregate consideration for the total number of such additional
      shares of common stock so issued would purchase at a price per share equal
      to the outstanding conversion price in effect immediately prior to such
      issuance; and (2) the denominator of which shall be equal to the number of
      shares of outstanding common stock immediately after the issuance of such
      additional shares of common stock. However, the Company is not required to
      make any adjustment to the conversion price upon securities issued in
      connection with: a bona fide acquisition of business; the exercise of
      warrants issued in the Private Placement; bona fide strategic license
      agreement or other partnering arrangements; grant of options to purchase
      common stock at no less than the then-applicable fair market value under
      equity incentive plans; any engagement letter or consulting agreement at
      no less than the then-applicable fair market value to advisors or
      consultants; reasonable commercial credit arrangements, equipment
      financings or similar transactions to financial institutions or lessors,
      or similar commercial situations to vendors or customers or to other
      persons; any recapitalization.




Inability to Fully Convert.
If the Company cannot issue shares of common stock registered for resale under
the Registration Statement (as described in Note 18) for any reasons, holders of
the Series A Preferred Stock, solely at the holder’s option, can require the
Company to redeem from such holder those Series A Preferred Stock for which the
Company is unable to issue registered shares of common stock at a price equal
the Series A Liquidation Preference Amount (“Mandatory Redemption”), provided
that the Company shall have the sole option to pay the Mandatory Redemption
Price in cash or shares of common stock.




Accounting
for Series A Preferred Stock




The
Company has evaluated the terms of the Series A Preferred Stock and determined
that the Series A Preferred Stock, without embodying an obligation for the
Company to repurchase or to settle by transferring assets, is not a liability in
accordance with the guidance provided in ASC Topic 480, Distinguishing Liabilities from
Equity.




Because
the event that may trigger redemption of the Series A Preferred Stock (the
delivery of registered shares), is not solely within the Company’s control, the
Series A Preferred Stock has been classified as mezzanine equity (out of
permanent equity) in accordance with the requirement of ASC
480-10-S99.




As of
March 31, 2010, the Company has not adjusted the carrying value of the Series A
Preferred Stock to its redemption value or recognize any accretion charges as it
is considered not probable that the Series A Preferred Stock will become
redeemable, in accordance with the requirements of SEC Staff Guidance on
redeemable preferred stock in ASC 480-10-S99.


F-28


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      13
            SHAREHOLDERS’
      EQUITY (CONTINUED)




Common
Stock Purchase Warrants




Series
A Warrants




As of
March 31, 2010, the Company had outstanding Series A Warrants to purchase up to
1,968,363 shares of common stock. The Series A Warrants:




(a)
            entitle
      the holder to purchase that number of Series A Warrant Shares as is equal
      to 25% of the aggregate number of shares of common stock included in the
      Units and underlying the Series A Preferred Stock purchased by such
      holder;




(b)
            are
      exercisable at any time for three years from February 26, 2010, the
      Closing Date of the Private
Placement;




(c)
            are
      exercisable, in whole or in part, at the Series A Warrant exercise price
      of $4.50 per share, subject to adjustment upon the occurrence of certain
      events, including recapitalizations or consolidations, combinations of the
      Company’s common stock;




(d)
            may
      be exercised only for cash (except that there will be a cashless exercise
      option at any time during which a registration statement covering such
      shares is not effective); and




(e)
            are
      callable by the Company following the date that the common stock equals or
      exceeds $9.00 for 15 consecutive trading days and the average daily
      trading volume of the common stock exceeds 75,000 shares for 15
      consecutive trading days at a price equal to $0.001 per called Series A
      Warrant Share.




Series
B Warrants




As of
March 31, 2010, the Company had outstanding Series B Warrants to purchase up to
1,968,363 shares of common stock.  The Series B Warrants:




(a)
            entitle
      the holder to purchase that number of Series B Warrant Shares as is equal
      to 25% of the aggregate number of shares of common stock included in the
      Units and underlying the Series A Preferred Stock purchased by such
      holder;




(b)
            are
      exercisable at any time for three years from February 26, 2010, the
      Closing Date of the Private
Placement;




(c)
            are
      exercisable, in whole or in part, at the Series B Warrant exercise price
      of $5.75 per share, subject to adjustment upon the occurrence of certain
      events, including recapitalizations or consolidations, combinations of the
      Company’s common stock;




(d)
            may
      be exercised only for cash (except that there will be a cashless exercise
      option at any time during which a registration statement covering such
      shares is not effective); and




(e)
            are
      callable by the Company following the date that the common stock equals or
      exceeds $11.50 for 15 consecutive trading days and the average daily
      trading volume of the common stock exceeds 75,000 shares for 15
      consecutive trading days at a price equal to $0.001 per called Series B
      Warrant Share.




Placement
Agent Warrants




As of
March 31, 2010, in
addition to the above Series A and B Warrants issued to the investors,the Company had outstanding




The
Company has evaluated the terms of the warrants issued in the Private Placement
with reference to the guidance provided in ASC 815-40-15. The Company has
concluded that these warrants are indexed to the Company’s own stock, because
the warrants have no contingent exercise provision and have fixed strike prices
which are only subject to adjustments in the event of stock split, combinations,
dividends, mergers or other customary corporate events. Therefore, these
warrants have been classified as equity.


F-29


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      14
            STATUTORY
      RESERVES




The
Company’s subsidiary, Beijing JianXin, being incorporated in the PRC is required
on an annual basis to make appropriations of retained earnings set at certain
percentage of after-tax profit determined in accordance with PRC accounting
standards and regulations (“PRC GAAP”). Beijing JianXin must make appropriations
to (i) general reserve and (ii) enterprise expansion fund in accordance with the
Law of the PRC on Enterprises Operated Exclusively with Foreign
Capital.




The
general reserve fund requires annual appropriations of 10% of after-tax profit
(as determined under PRC GAAP at each year-end and after setting off against any
accumulated losses from prior years) until such fund has reached 50% of Beijing
JianXin’s registered capital whereas enterprise expansion fund appropriation is
at its discretion. Appropriation to the general reserve must be made before
distribution of dividends to stockholders. The general reserve fund and
statutory reserve fund can only be used for specific purposes, such as setting
off the accumulated losses, enterprise expansion or increasing the registered
capital. The enterprise expansion fund was mainly used to expand the production
and operation; it also may be used for increasing the registered
capital.




Appropriations
to these funds are classified in the consolidated balance sheets as statutory
reserves. During the years ended March 31, 2010 and 2009, the Company made total
appropriations of $Nil and $1,138,733 from retained earnings to these statutory
reserves, respectively.




There are
no legal requirements in the PRC to fund these reserves by transfer of cash to
restricted accounts, and the Company has not done so.




NOTE 15
            OTHER INCOME –VALUEADDED TAX
      REFUND




Beijing
JianXin has been recognized by the PRC government as a software enterprise with
its own software copyright. Under the PRC government’s preferential policies for
software enterprises, Beijing JianXin is entitled to a refund of 14% value added
tax in respect of its sales of self-developed software products. The Company
recognizes the value added tax refund as revenue only when it has been received
and there is no condition to the use of the fund received.




NOTE
      16
            INCOME
      TAXES




The
entities within the Company file separate tax returns in the respective tax
jurisdictions that they operate.




LianDi
Clean is subject to taxes in the U.S.




China
LianDi, being incorporated in the British Virgin Islands (“BVI”), is not subject
to any income tax in the BVI.




Under the
Inland Revenue Ordinance of Hong Kong, only profits arising in or derived from
Hong Kong are chargeable to Hong Kong profits tax, whereas the residence of a
taxpayer is not relevant. Therefore, Hua Shen HK, PEL HK and Bright Flow are
generally subject to Hong Kong income tax on its taxable income derived from the
trade or businesses carried out by them in Hong Kong at 16.5% for the years
ended March 31, 2010 and 2009.




In March
2007, the PRC government enacted the PRC Enterprise Income Tax Law, or the New
EIT Law, and promulgated related regulation, Implementing Regulations for the
New EIT Law. The law and regulation became effective from January 1, 2008. The
PRC Enterprise Income Tax Law, among other things, imposes a unified income tax
rate of 25% for both domestic and foreign invested enterprises registered in the
PRC.




Beijing
JianXin being established in the PRC is generally subject to PRC enterprise
income tax (“EIT”). Beijing JianXin has been recognized by the relevant PRC tax
authority as a software enterprise with its own software copyright and is
entitled to tax preferential treatment – a tax holiday for two-year EIT
exemption for the calendar years ended December 31, 2009 and 2010, and a 50%
reduction on its EIT rate for the three ensuing calendar years ending December
31, 2011, 2012 and 2013.


F-30


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      16
            INCOME
      TAXES (CONTINUED)




The
Company’s income tax expense consisted of:





Year
      Ended March 31,2010
                
                
                2009Current –
      PRC income tax-
      provision for current year
                
                $
                816
                
                
                $
                41,720Deferred
                
                
                -
                
                
                
                -Total
                
                $
                816
                
                
                $
                41,720




A
reconciliation of the provision for income taxes determined at the US federal
corporate income tax rate to the Company’s effective income tax rate is as
follows:


Year
      Ended March 31,2010
                
                
                2009Pre-tax
      income
                
                $
                15,038,794
                
                
                $
                7,128,704US
      federal corporate income tax rate
                
                
                35
                %
                
                
                35
                %Income
      tax expense computed at U.S. federal corporate income tax
    rate
                
                
                5,263,578
                
                
                
                2,495,046Reconciling
      items:Rate
      differential for domestic earnings
                
                
                (1,472,145
                )
                
                
                (346,216
                )Tax
      holiday of Beijing JianXin
                
                
                (3,889,720
                )
                
                
                (2,846,832
                )Non-deductible/taxable
      expenses (income)
                
                
                99,747
                
                
                
                734,181Other
                
                
                (644
                )
                
                
                5,541Effective
      tax expense
                
                $
                816
                
                
                $
                41,720




The
effect of the tax holiday of Beijing JianXin amounted to $3,889,720 and
$2,846,832 for the years ended March 31, 2010 and 2009, equivalent to basic
earnings per share of $0.14 and $0.10, respectively, and diluted earnings per
share amount of $0.14 and $0.10, respectively.




The
Company had deferred tax assets as follows:





As
      of March 31,2010
                    
                    
                    2009Tax
      effect of net operating losses carried forward
                    
                    $
                    96,250
                    
                    
                    $
                    −Less:
      Valuation allowance
                    
                    
                    (96,250
                    )
                    
                    
                    −Net
      deferred tax assets
                    
                    $
                    −
                    
                    
                    $
                    −




The net
operating losses carried forward were approximately $457,000 at March 31, 2010,
which will expire in years through 2030. Full valuation allowance has been made
because it is considered more likely than not that the deferred tax assets will
not be realized through sufficient future earnings of the entity to which the
operating losses relate.  As of March 31, 2010 and 2009, the Company
did not have any other significant temporary differences and carryforwards that
may result in deferred tax.


F-31


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      16
            INCOME
      TAXES (CONTINUED)




Uncertainties
exist with respect to how the New EIT Law applies to the tax residency status of
the Company’s subsidiaries organized outside of the PRC. The New EIT Law
includes a provision specifying that legal entities organized outside of the PRC
will be considered residents for PRC income tax purposes if their place of
effective management or control is within the PRC. The Implementation Rules to
the New Law provide that non-resident legal entities will be considered PRC
residents if substantial and overall management and control over the
manufacturing and business operations, personnel, accounting and properties
occurs within the PRC.  However, because the New EIT Law and
Implementation Rules are new, no official guidance or application of this new
“residency” classification has been available. Despite the uncertainties on the
issue, the Company does not believe that its legal entities organized outside of
the PRC should be treated as PRC residents for the New EIT Law’s purposes. If
one or more of the Company’s legal entities organized outside of the China were
characterized as China tax residents, the impact would adversely affect the
Company’s results of operation.




The
Company classifies interest and/or penalties related to unrecognized tax
benefits as a component of income tax provisions; however, as of March 31, 2010
and 2009, there was no interest and penalties related to uncertain tax
positions, and the Company has no material unrecognized tax benefit which would
materially affect the effective income tax rate in future
periods.  The Company does not anticipate any significant increases or
decreases to its liability for unrecognized tax benefit within the next 12
months.




The new
EIT law also imposes a withholding tax of 10% unless reduced by a tax treaty,
for dividends distributed by a PRC-resident enterprise to its immediate holding
company outside the PRC for earnings accumulated beginning on January 1, 2008
and undistributed earnings generated prior to January 1, 2008 are exempt from
such withholding tax. The Company has not provided for withholding income taxes
on accumulated earnings of Beijing JianXin as of March 31, 2010 and 2009 since
its earnings are intended to be reinvested indefinitely in the overseas
jurisdictions. It is not practicable to estimate the amount of additional taxes
that might be payable on such undistributed earnings.




According
to the Hong Kong profits tax law, the statue of limitations is six
years.  Accordingly, the income tax returns of the Company’s Hong Kong
subsidiaries for the years ended March 31, 2005 through 2010 are open to
examination by the Hong Kong tax authority.




According
to the PRC Tax Administration and Collection Law, the statute of limitations is
three years if the underpayment of taxes is due to computational or other errors
made by the taxpayer or the withholding agent.  The statute of
limitations extends to five years under special circumstances. In the case of
transfer pricing issues, the statute of limitation is ten years. There is no
statute of limitation in the case of tax evasion. Accordingly, the income tax
returns of Beijing JianXin for the years ended March 31, 2008 through 2010 are
open to examination by the PRC state and local tax authorities.




NOTE
      17
            DUE
      TO SHAREHOLDERS





As
      of March 31,2010
                
                
                2009Due
      to Mr. Zuo (shareholder, CEO and chairman of the Company, see also Note
      1)
                
                $
                936,565
                
                
                $
                4,581,934Due
      to SJ Asia Pacific Limited (shareholder of the Company, see also Note
      1)
                
                
                7,524,596
                
                
                
                21,660,402Total
                
                $
                8,461,161
                
                
                $
                26,242,336




The
amount due to Mr. Zuo is unsecured, interest free and payable on demand. The
amount due to SJ Asia Pacific Limited is also unsecured and payable on demand,
but bears interest at 3% to 5% per annum.


F-32


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      18
            CERTAIN
      RISKS AND CONCENTRATION




Credit
risk and concentration of customers




Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist primarily of cash and cash equivalents, trading
securities, accounts receivable, and prepayments and other current assets. As of
March 31, 2010 and 2009, substantially all of the Company’s cash and cash
equivalents and trading securities were held by major financial institutions
located in the PRC and Hong Kong, which management believes are of high credit
quality.




The
Company primarily derived its revenue from petroleum, petrochemical and energy
companies operating in the PRC and had certain risk of concentration of
customers as follows:





·
            As
      of March 31, 2010, two customers individually accounted for 50% and 45% of
      the accounts receivables of the Company, respectively.  As of
      March 31, 2009, four customers individually accounted for 39%, 37%, 11%
      and 10% of the accounts receivable of the Company,
      respectively.  Except for the afore-mentioned, there was no
      other single customer who accounted for more than 10% of the Company’s
      accounts receivable as of March 31, 2010 or
  2009.





·
            During
      the year ended March 31, 2010, two customers individually accounted for
      51% and 40% of the Company’s net revenue, respectively.  During
      the year ended March 31, 2009, three customers individually accounted for
      30%, 17% and 15% of the Company’s net revenue,
      respectively.  Except for the afore-mentioned, there was no
      other single customer who accounted for more than 10% of the Company’s net
      revenue for the years ended March 31, 2010 or
  2009.




Concentration
of suppliers




The
Company sourced industrial valves and other equipment from a few suppliers who
individually accounted for more than 10% of the Company’s costs of
revenue:





·
            During
      the year ended March 31, 2010, two suppliers altogether accounted for 66%
      of the Company’s costs of revenue (54% and 12% individually). During the
      year ended March 31, 2009, five suppliers altogether accounted for 83% of
      the Company’s costs of revenue (23%, 18%, 15%, 15% and 12%
      individually).




Risk
arising from operations in foreign countries




The
majority of the Company’s operations are conducted within the PRC. The Company’s
operations in the PRC are subject to various political, economic, and other
risks and uncertainties inherent in the PRC. Among other risks, the Company’s
operations in the PRC are subject to the risks of restrictions on transfer of
funds, export duties, quotas, and embargoes, domestic and international customs
and tariffs, changing taxation policies, foreign exchange restrictions; and
political conditions and governmental regulations.


F-33


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      19
            COMMITMENTS
      AND CONTINGENCIES




Operating
Leases Commitments




In the
normal course of business, the Company entered into operating lease agreements
for offices rental. The Company was obligated under operating leases requiring
minimum rentals as of March 31, 2010 as follows:





Payable
      within fiscal year ending March 31,-
      2011
                
                $
                418,518-
      2012
                
                
                267,932-
      2013
                
                
                219,447-2014
                
                
                13,898-
      Thereafter
                
                
                -Total
      minimum lease payments
                
                $
                919,795




During
the years ended March 31, 2010 and 2009, rental expenses under operating leases
amounted to $397,010 and $377,317, respectively.




Registration
Rights Arrangement




In
connection with the Private Placement (see Note 12), the Company entered into a
registration rights agreement (the “Registration Rights Agreement”) with the
Investors, in which the Company agreed to file a registration statement (the
“Registration Statement”) with the Securities Exchange Commission to register
for resale the Shares, the common stock issuable upon conversion of the Series A
Preferred Stock, the Series A Warrant Shares and the Series B Warrant Shares,
within 30 calendar days of the Closing Date (as extended to the following
business day if the 30th day following the Closing Date falls on a Saturday,
Sunday or a legal holiday), and to have the registration statement declared
effective within 150 calendar days of the Closing Date or within 180 calendar
days of the Closing Date in the event of a full review of the registration
statement by the SEC. The Company agreed to keep this registration statement
continuously effective under the Securities Act until such date as is the
earlier of the date when all of the securities covered by this registration
statement have been sold or the date on which such securities may be sold
without any restriction pursuant to Rule144. If the Company does not comply with
the foregoing obligations under the Registration Rights Agreement, the Company
will be required to pay cash liquidated damages to each investor, at the rate of
2% of the applicable subscription amount for each 30 day period in which the
Company is not in compliance; provided, that such liquidated damages will be
capped at 10% of the subscription amount of each investor and will not apply to
any shares that may be sold pursuant to Rule 144 under the Securities Act, or
are subject to an SEC comment with respect to Rule 415 promulgated under the
Securities Act.




The
Company has accounted for the Registration Rights Agreement in accordance with
ASC 825-20, “Registration Payment Arrangements.” The Company’s contingent
obligation to make liquidated damages under the Registration Rights Agreement
will be recognized and measured separately in accordance with ASC Subtopic
450-20, “Loss Contingencies.” On March 29, 2010, the Company filed the
Registration Statement on Form S-1. Further on May 24, 2010, the Company filed
the Amendment to Registration Statement on Form S-1/A pending SEC’s approval. As
of March 31, 2010 and up to the date of approval of these financial statements,
it is considered not probable that the Company will be required to pay any
liquidated damages under the Registration Rights Agreement and no provision has
been made.


F-34


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      20
            SEGMENT
      DATA




The
Company follows FASB ASC Topic 280, Segment Reporting, which
requires that companies disclose segment data based on how management makes
decision about allocating resources to segments and evaluating their
performance.Reportable
operating segments include components of an entity about which separate
financial information is available and which operating results are regularly
reviewed by the chief operating decision maker (“CODM”) to make decisions about
resources to be allocated to the segment and assess each operating segment’s
performance. The Company has primarily engaged in the delivering of petroleum
and petrochemical equipment and provision of related technical services using
the Company’s proprietary technology and know-how, as well as selling of data
processing software for petrochemical, petroleum and other energy companies.
Much of the information provided in these consolidated financial statements is
similar to, or the same as, that reviewed on a regular basis by the Company’s
COMD. As a result, the Company operates and manages its business as a single
operating segment.




The
following tables set out the analysis of the Company’s net revenue:


Year
      Ended March 31,2010
                    
                    
                    2009Product and servicesIndustrial
      valves and other equipment with related technical services
                    
                    $
                    71,152,658
                    
                    
                    $
                    25,952,152Data
      processing platform software for applications in petroleum and
      petrochemical productions
                    
                    
                    6,433,064
                    
                    
                    
                    4,791,901Technical
      consultancy services
                    
                    
                    133,758
                    
                    
                    
                    521,232Total
                    
                    $
                    77,719,480
                    
                    
                    $
                    31,265,285




During
the two years ended March 31, 2010, the Company derived all of its revenue from
delivering products and services to customers whose operations were located in
China (including Hong Kong).




NOTE
      21
            RESTRICTED
      NET ASSETS




As
discussed in Note 14, the Company’s PRC subsidiary may only pay dividend out of
its retained earnings determined in accordance with the accounting standards and
regulations in the PRC and after it has met the PRC requirements for
appropriation to statutory reserves.




In
addition, part of the Company’s businesses is transacted and assets are
denominated in RMB, which is not freely convertible into foreign currencies. All
foreign exchange transactions take place either through the People’s Bank of
China or other banks authorized to buy and sell foreign currencies at the
exchange rates quoted by the People’s Bank of China. Approval of foreign
currency payments by the People’s Bank of China or other regulatory institutions
requires submitting a payment application form together with suppliers’
invoices, shipping documents and signed contracts. These exchange control
measures imposed by the PRC government authorities may restrict the ability of
the Company’s PRC subsidiary, Beijing JianXin, to transfer its net assets to the
Company through loans, advances or cash dividends, which consisted of paid-up
capital, retained earnings and statutory reserves and which aggregate amount of
approximately $29 million exceeded 25% of the Company’s consolidated net assets
as of March 31, 2010. According, condensed parent company financial statements
have been prepared in accordance with Rule 5.04 and Rule 12-04 of SEC Regulation
S-X.


F-35


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      21
            RESTRICTED
      NET ASSETS (CONTINUED)




Supplemental
Parent Company Financial Information – LianDi Clean Technology Inc.




Condensed
Balance Sheets


As
      of March 31,2010
                    
                    
                    2009ASSETSCurrent
      assets:Cash
      and cash equivalents
                    
                    $
                    244,729
                    
                    
                    $
                    −Total
      current assets
                    
                    
                    244,729
                    
                    
                    
                    −Investments
      in subsidiaries
                    
                    
                    60,493,340
                    
                    
                    
                    −Total
      assets
                    
                    $
                    60,738,069
                    
                    
                    $
                    −LIABILITIESCurrent
      liabilities:Accrued
      expenses
                    
                    $
                    123,120
                    
                    
                    $
                    −Preferred
      stock dividend payable
                    
                    
                    184,820
                    
                    
                    $
                    −Total
      liabilities
                    
                    
                    307,940
                    
                    
                    
                    −8%
      Series A contingently redeemable convertible preferred stock (25,000,000
      shares authorized; par value: $0.001 per share; 7,086,078 shares and none
      issued and outstanding, respectively; aggregate liquidation preference
      amount: $24,986,093 and $nil, including accrued but unpaid dividend of
      $184,820 and $nil, at March 31, 2010 and 2009,
respectively
                    
                    
                    14,059,018
                    
                    
                    
                    −Shareholders’
      equityCommon
      stock, $0.001 par value,50 000,000 shares authorized, 29,358,772 and
      27,354,480 shares issued and outstanding, respectively
                    
                    
                    29,359
                    
                    
                    
                    27,355Additional
      paid-in capital
                    
                    
                    19,891,932
                    
                    
                    
                    −Retained
      earnings
                    
                    
                    26,449,820
                    
                    
                    
                    (27,355
                    )Total
      shareholders’ equity
                    
                    
                    46,371,111
                    
                    
                    
                    −Total
      liabilities and shareholders’ equity
                    
                    $
                    60,738,069
                    
                    
                    $
                    −




Condensed
Statement of Income


For
      the Year Ended March 31,2010
                          
                          
                          2009NET
      REVENUE
                          
                          $
                          −
                          
                          
                          $
                          −Other
      income (expenses):Interest
      income
                          
                          
                          29
                          
                          
                          
                          −Bank
      charges
                          
                          
                          (19
                          )
                          
                          
                          −Merger
      expenses
                          
                          
                          (275,000
                          )
                          
                          
                          −Income
      tax
                          
                          
                          −
                          
                          
                          
                          −Equity
      in earnings of subsidiaries
                          
                          
                          15,312,968
                          
                          
                          
                          7,086,984Net
      income
                          
                          $
                          15,037,978
                          
                          
                          $
                          7,086,984




F-36


LIANDI
CLEAN TECHNOLOGY INC


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED MARCH 31, 2010 AND 2009




NOTE
      21
            RESTRICTED
      NET ASSETS (CONTINUED)




Supplemental
Parent Company Financial Information – LianDi Clean Technology Inc.




Condensed
Statement of Cash Flows


For
      the Year Ended March 31,2010
                                
                                
                                2009Net
      cash provided by operating activities
                                
                                $
                                10
                                
                                
                                $
                                −Net
      cash used in investing activities
                                
                                
                                (24,307,659
                                )
                                
                                
                                −Net
      cash provided by financing activities
                                
                                
                                24,552,378
                                
                                
                                
                                −Cash
      and cash equivalents, beginning of year
                                
                                
                                −
                                
                                
                                
                                −Cash
      and cash equivalents, end of year
                                
                                $
                                244,729
                                
                                
                                $
                                −




Notes
to supplemental Parent Company Financial Information




The
Company records its investment in subsidiaries under the equity method of
accounting as prescribed in ASC Topic 323, Investment – Equity Method and Joint
Ventures.. Such investment and loans to subsidiaries are presented on the
balance sheet as “Investments in subsidiaries” and the income of the
subsidiaries is presented as “Equity in earnings of subsidiaries” on the
statement of income.




These
supplemental condensed parent company financial statements should be read in
conjunction with the notes to the Company’s Consolidated Financial Statements.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with U.S. GAAP have been condensed or
omitted.




As of
March 31, 2009 and 2010, there were no material contingencies, significant
provisions for long-term obligations, or guarantees of the Company, except as
separately disclosed in the Consolidated Financial Statements, if
any.


F-37