XOTC:WTFSE Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2012

 

OR

 

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

 

For the transition period from __________ to __________

 

COMMISSION FILE NUMBER: 000-53672

 

XINDE TECHNOLOGY COMPANY

(Exact name of registrant as specified in its charter)

 

Nevada   20-812712

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

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

The People’s Republic of China

(Address of principal executive offices)

 

(011) 86-536-8322068

(Registrant’s Telephone Number, Including Area Code)

 

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

 

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

 

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

 

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer ¨ Smaller Reporting Company x

 

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

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:  As of May 11, 2012, the registrant had 240,000,000 shares of common stock, par value $0.001 per share, issued and outstanding. 

  

 
 

  

TABLE OF CONTENTS

 

    PAGE
PART I FINANCIAL INFORMATION   3
     
ITEM 1. FINANCIAL STATEMENTS   3
     
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION   25
     
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   40
     
ITEM 4. CONTROLS AND PROCEDURES   40
     
PART II OTHER INFORMATION   41
     
ITEM 1. LEGAL PROCEEDINGS   41
     
ITEM 1A. RISK FACTORS   41
     
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS   41
     
ITEM 3. DEFAULTS UPON SENIOR SECURITIES   41
     
ITEM 4. MINE SAFETY DISCLOSURES   41
     
ITEM 5. OTHER INFORMATION   41
     
ITEM 6. EXHIBITS   41
     
SIGNATURES   43
     

   

-2-
 

 

XINDE TECHNOLOGY COMPANY

 

AND SUBSIDIARIES

 

CONTENTS

 

Page

 

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2012  AND JUNE 30, 2010 (UNAUDITED)   F-1
     
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME  FOR THE THREE AND NINE MONTHS ENDED  MARCH  31, 2012 AND 2011 (UNAUDITED)   F-3
     
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH 31, 2012 AND 2011 (UNAUDITED)   F-4
     
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2012 AND 2011 (UNAUDITED)   F-6

 

-3-
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

ASSETS 

   March 31,   June 30, 
   2012   2011 
         
CURRENT ASSETS          
Cash and cash equivalents  $3,957,974   $4,292,507 
Accounts receivable, net of allowance for doubtful accounts of $1,430,574 and $794,850 at March 31, 2012 and June 30, 2011, respectively   93,174,858    97,785,036 
Inventories   25,494,118    10,430,199 
Notes receivable, including bank acceptance notes   16,408,388    7,214,395 
Prepayments for goods   7,071,302    5,710,029 
Prepaid expenses and other receivables   54,904    40,362 
Due from employees   82,186    39,206 
Total Current Assets   146,243,730    125,511,734 
           
LONG-TERM ASSETS          
Plant and equipment, net   3,890,328    3,081,362 
Land use rights, net   2,354,847    925,240 
Construction in progress   -    889,839 
Deposit for land use right   -    1,326,605 
Deferred taxes   158,676    136,992 
Total Long-Term Assets   6,403,851    6,360,038 
           
TOTAL ASSETS  $152,647,581   $131,871,772 

 

See accompanying notes to condensed consolidated financial statements

 

F-1
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

   March 31,   June 30, 
   2012   2011 
CURRENT LIABILITIES          
Accounts payable  $4,872,318   $6,576,118 
Short-term bank loans   2,645,670    2,630,154 
Customer deposits   524,140    219,819 
Notes payable, including related parties   839,406    1,313,909 
Current portion of long-term notes payable to related parties   98,382    90,864 
Income tax payable   12,746,846    9,723,497 
Other payables   1,262,061    1,199,764 
Value added tax payable   36,011,775    26,331,151 
Due to employees   106,615    78,953 
Due to related parties   461,784    132,599 
Accrued expenses   753,379    829,115 
Deferred taxes   598,231    937,880 
Total Current Liabilities   60,920,607    50,063,823 
           
LONG-TERM LIABILITIES          
Notes payable to related parties   152,512    221,667 
Total Long-Term Liabilities   152,512    221,667 
           
TOTAL LIABILITIES   61,073,119    50,285,490 
           
COMMITMENT AND CONTINGENCIES          
           
SHAREHOLDERS’ EQUITY          
Common stock, $0.001 par value; 350,000,000 shares authorized; 240,000,000 shares issued and outstanding at March 31, 2012 and June 30, 2012, respectively   240,000    240,000 
Additional paid-in capital   892,334    892,334 
Retained earnings (the restricted portion is $204,069 at March 31, 2011 and June 30, 2010)   80,612,603    72,613,580 
Accumulated other comprehensive income   9,829,525    7,840,368 
TOTAL SHAREHOLDERS’ EQUITY   91,574,462    81,586,282 
           
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY  $152,647,581   $131,871,772 

 

See accompanying notes to condensed consolidated financial statements

 

F-2
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND

COMPREHENSIVE INCOME

(UNAUDITED)

 

   Three Months Ended   Nine Months Ended 
   March 31, 2012   March 31, 2011   March 31, 2012   March 31, 2011 
REVENUES, NET  $21,891,994   $27,596,387   $64,198,126   $90,848,899 
                     
COST OF GOODS SOLD   (16,657,130)   (21,723,469)   (51,065,666)   (73,913,022)
GROSS PROFIT   5,234,864    5,872,918    13,132,460    16,935,877 
                     
Selling and marketing   (421,438)   (693,989)   (1,267,998)   (2,445,004)
General and administrative   (1,053,907)   (855,401)   (2,173,543)   (1,619,965)
Bad debt recoveries   8,416    137,324    115,991    800,298 
INCOME FROM OPERATIONS   3,767,935    4,460,852    9,806,910    13,671,206 
                     
Interest expense, net   (47,541)   (97,592)   (113,477)   (302,091)
Other income, net   6,534    4,587    58,584    244,868 
Exempted value added tax   -    -    659,708    3,289,036 
                     
INCOME BEFORE INCOME TAXES   3,726,928    4,367,847    10,411,725    16,903,019 
                     
INCOME TAXES   (926,104)   (736,813)   (2,412,702)   (2,385,488)
                     
NET INCOME   2,800,824    3,631,034    7,999,023    14,517,531 
                     
OTHER COMPREHENSIVE INCOME                    
Foreign currency translation gain   550,611    596,072    1,989,157    2,416,089 
                     
COMPREHENSIVE INCOME  $3,351,435   $4,227,106   $9,988,180   $16,933,620 
                     
WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED   240,000,000    240,000,000    240,000,000    240,000,000 
NET INCOME PER SHARE, BASIC AND DILUTED  $0.01   $0.02   $0.03   $0.06 

 

See accompanying notes to the condensed consolidated financial statement

 

F-3
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

   Nine Months Ended 
   March 31, 2012   March 31, 2011 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $7,999,023   $14,517,531 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   303,596    217,714 
Provision for doubtful accounts   728,829    190,581 
Bad debt recoveries   (115,991)   (800,298)
Exempted value added tax   (659,708)   (3,289,036)
Deferred taxes   (361,335)   410,783 
Net loss (gain)on settlement of accounts receivable and accounts payable for fixed assets and inventories   1,686    (7,661)
Gain on disposal of fixed assets   (24,647)   - 
           
Changes in operating assets and liabilities:          
(Increase) Decrease In:          
Accounts receivable   3,974,453    (8,444,297)
Inventories   (15,063,919)   (15,626,355)
Bank acceptance notes   (10,096,092)   (3,092,045)
Prepayments for goods   (1,361,273)   (1,883,791)
Prepaid expenses and other receivables   (14,543)   (37,092)
Due from employees   (42,980)   27,058 
           
Increase (Decrease) In:          
Accounts payable   (1,693,032)   797,062 
Value added tax payable   10,340,333    14,438,119 
Other payables   62,296    154,632 
Taxes payable   3,023,349    2,190,968 
Customer deposits   304,321    24,053 
Due to employees   27,662    (66,218)
Due to related parties   329,185    (255,391)
Accrued expenses   (75,734)   483,592 
Net cash used in operating activities   (2,414,521)   (50,091)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchases of plant and equipment   (155,471)   (126,356)
Purchases of construction in progress   (22,248)   (37,551)
Proceeds from disposal of fixed assets   101,650    - 
Payment for Land use right   (143,370)   - 
Repayment of notes receivable   1,199,003    139,448 
Issuances of notes receivable   (237,503)   (331,299)
Net cash provided by (used in) investing activities   742,060   (355,758)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from short-term loans   2,629,217    1,201,021 
Repayments of short-term loans   (2,676,449)   (2,642,246)
Proceeds from notes payable   1,360,424    782,934 
Repayments of notes payable   (1,931,973)   (315,278)
Repayments of long-term debt   -    (13,599)
Net cash used in financing activities  $(618,780)  $(987,168)

 

See accompanying notes to condensed consolidated financial statements

 

F-4
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   Nine Months Ended 
   March 31, 2012   March 31, 2011 
         
NET (DECREASE) IN CASH AND CASH EQUIVALENTS  $(2,291,241)  $(1,393,017)
Effect of exchange rate changes on cash   1,956,707    1,159,797 
Cash and cash equivalents at beginning of period   4,292,507    3,399,360 
CASH AND CASH EQUIVALENTS AT END OF PERIOD  $3,957,974    3,166,140 

 

SUPPLEMENTARY CASH FLOW INFORMATION:
   March 31, 2012   March 31, 2011 
Income taxes paid  $15,119   $13,863 
Interest paid  $389,224   $185,982 

 

SUPPLEMENTAL NON-CASH DISCLOSURES:

 

1. During the nine months ended March 31, 2012, accounts payable with an aggregate carrying amount of $10,768 was settled by three fixed assets with a combined fair value of $12,454, resulting in a loss of $1,686.

 

2. During the nine months ended March 31, 2012, fixed assets with a net book value of $77,003 were disposed for cash $101,650, resulting in a $24,647 gain.

 

3. During the nine months ended March 31, 2012, $729,750 was transferred from construction in progress to plant and equipment.

 

4. During the nine months ended March 31, 2012, $1,469,975 was transferred from deposit to land use right.

 

5. During the nine months ended March 31, 2011, accounts payable with an aggregate carrying amount of $15,013 was settled by two fixed assets with an aggregate fair value of $7,352, resulting in a gain of $7,661.

 

See accompanying notes to condensed consolidated financial statements

 

F-5
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES

 

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

 

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

 

Details of the Company as of March 31, 2012 are as follows:

 

Name   Place and Date
of
Establishment/
Incorporation
  Relationships   Principal Activities
             
Xinde Industrial Limited (“XIL”), formerly Jolly Promise Ltd. (“JPL”)  

British Virgin Island

July 2, 2008

  Wholly-owned subsidiary of Xinde   Investment holding company
             
H.K. Sindhi Fuel Injection Co., Ltd (“HKSIND”)  

Hong Kong, PRC,

June 7, 2004

  Wholly-owned subsidiary of JPL   Investment holding company

 

On December 30, 2011, Jolly Promise Ltd. changed its name to Xinde Industrial Limited. (“XIL”).

 

F-6
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

 

Name   Place and Date
of
Establishment/
Incorporation
  Relationship   Principal Activities
             

Weifang Huajie Fuel Injection Co., Ltd.

(“Huajie”)

 

Shandong, PRC

October 24, 2009

  Wholly-owned subsidiary of HKSIND   Investment holding company
             

Weifang Xinde Fuel Injection System Co., Ltd.

(“Weifang Xinde”)

 

Shandong, PRC

October 29, 2007

  Wholly-owned subsidiary of Huajie   Investment holding company
             
Weifang Hengyuan Oil Pump & Oil Fitting Co., Ltd.
("Hengyuan")
 

Shandong, PRC,

December 21, 2001

  Wholly-owned subsidiary of Weifang Xinde   Design, development, manufacture, and commercializing of fuel injection pump, diesel fuel injection systems and injectors
             
Weifang Jinma Diesel Engine Co., Ltd. (“Jinma”)  

Shandong, PRC

December 19, 2003

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

Shandong, PRC

October 20, 2003

  Wholly-owned subsidiary of Weifang Xinde   Manufacture and sale of multi-cylinder diesel engine and small generating units

 

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

 

F-7
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 2 – BASIS OF PRESENTATION

 

The Company’s unaudited condensed consolidated financial statements as of March 31, 2012 and for the three and nine months ended March 31, 2012 and 2011 have been prepared in accordance with generally accepted accounting principles for interim financial information and pursuant to the requirements for reporting on Rule 8-03 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

 

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

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a)Use of Estimates

 

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

 

(b)Economic and Political Risks

 

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

 

F-8
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(c)Fair Value of Financial Instruments

 

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

 

These tiers include:

 

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

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

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

 

The assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820-10 as of March 31, 2012 are as follows:

 

       Fair Value Measurements at Reporting Date Using
   Carrying
Value as of
March 31,
2012
   Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs
(Level 3)
 
Long-term notes payable  $152,512   -  $152,512   $- 

 

The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, notes receivable, prepayments for goods, short-term bank loans, accounts payable, customer deposits, short-term notes payable, due to employee, due to related parties and other payables, approximate their fair values because of the short maturity of these instruments. The fair value of the Company’s long-term notes payable is estimated based on the current rates offered to the Company for debt of similar terms and maturities. Under this method, the Company’s fair value of long-term notes payable was not significantly different from the carrying value at March 31, 2012.

 

(d)Cash and Cash Equivalents

 

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

 

F-9
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(e)Inventories

 

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

 

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

 

(f)Prepayments

 

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

 

(g)Plant and Equipment

 

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

 

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

 

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

 

(h)Construction in Progress

 

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

 

(i)Land Use Rights

 

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

 

F-10
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(j)Impairment of Long-Term Assets

 

Long-term assets of the Company are reviewed annually as to whether their carrying value has become impaired, pursuant to the guidelines established in ASC 360-10. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from the related operations.  The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. There was no impairment for the nine months ended March 31, 2012 and 2011.

 

(k)Revenue Recognition

 

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

 

-Persuasive evidence of an arrangement exists,

-Delivery has occurred or services have been rendered,

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

-Collectability is reasonably assured.

 

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

 

The Company offers warranties on its products for periods between six and twelve months after the sale. The Company estimates the warranty reserves based on historical records and identical or similar types on the market. Warranty expenses related to product sales are charged to the condensed consolidated statements of income and comprehensive income in the period in which sales is recognized. During the nine months ended March 31, 2012 and 2011, warranty expense was $306,395 and $388,994, respectively, and is included in cost of goods sold in the accompanying condensed consolidated statements of income and comprehensive income.

 

(l)Retirement Benefits

 

Retirement benefits in the form of contributions under defined contribution retirement plans to the relevant authorities are charged to expense as incurred. The retirement benefits expense for the nine months ended March 31, 2012 and 2011are $258,972 and $142,729, respectively. All the retirement benefits expenses are included in general and administrative expenses.

 

F-11
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(m)Foreign Currency Translation

 

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

 

   March 31,
2012
   June 30,
2011
   March 31,
2011
 
             
Period ended RMB: US$ exchange rate   6.3122    6.4635    6.5501 
Average RMB: US$ exchange rate for three months ended   6.2976    -    6.5713 
Average RMB: US$ exchange rate for nine months ended   6.3517    -    6.6610 

 

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

 

(n)Comprehensive Income

 

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

 

(o)Earnings Per Share

 

Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no potentially dilutive securities for the nine months ended March 31, 2012 and 2011.

 

(p)Segment and Geographic Reporting

 

The Company operates in one business segment, the design, development, manufacture, and commercialization of fuel injection pumps, injectors, multi-cylinder diesel engines and small generator units mainly in the PRC. The sales of the Company outside of the PRC were insignificant for the nine months ended March 31, 2012 and 2011.

 

F-12
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

(q)Recent Accounting Pronouncements

 

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

 

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

 

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

 

F-13
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 4 – CONCENTRATIONS

 

(a)Customers

 

No customer accounted for more than 5% of total revenues or accounts receivable for the periods reported.

 

(b)Suppliers

 

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

 

   Purchases
Nine Months Ended
   Accounts Payable 
   March 31,     March 31,    June 30, 
Major Suppliers  2012   2011   2012   2011 
                 
Company A   11.4%   11.2%   -    0.9%
Company B   4.6%   5.7%   -    1.1%

 

NOTE 5 – INVENTORIES

 

Inventories are summarized as follows:

 

   March 31,
2012
   June 30,
2011
 
Raw materials  $18,560,179   $7,503,324 
Work-in-progress   878,170    1,325,905 
Finished goods   6,055,769    1,600,970 
Total inventories  $25,494,118   $10,430,199 

 

F-14
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 6 – NOTES RECEIVABLE

 

Notes receivable consist of the following:

 

         

March 31,

2012

   

June 30,

2011

Notes receivable from unrelated parties:                  
Due December 13, 2011, interest at 12% per annum (Settled on due date)       $ -   $ 1,547,149  
Due June 13, 2012, interest at 12% per annum   (a)     1,584,234        
Due December 13, 2011, interest free (Settled on due date)         -     9,283  
Due June 13, 2012, interest free         152,086     -  
Due December 24, 2011, interest at 10% per annum (Settled on due date)         -     25,741  
Due June 24, 2012, interest at 10% per annum         27,949     -  
Due December 24, 2011, interest free (Settled on due date)         -     2,661  
Due January 10, 2012, interest free         -     61,370  
Due July 10, 2012, interest free         62,841        
Due January 10, 2012, interest at 12% per annum (Settled on due date)         -     1,083,005  
Subtotal       $ 1,827,110   $ 2,729,209  
                   
Bank acceptance notes (aggregated by month of maturity):                  
Due July, 2011 (Settled on its due date)         -     1,547  
Due August, 2011 (Settled on its due date)         -     77,357  
Due September, 2011 (Settled on its due date)         -     416,476  
Due October, 2011 (Settled on its due date)         -     909,254  
Due November, 2011 (Settled on its due date)         -     1,724,762  
Due December, 2011 (Settled on its due date)         -     1,355,790  
Due April, 2012 (Settled on its due date)         5,954,029     -  
Due May, 2012         1,773,844     -  
Due June, 2012         950,049     -  
Due July, 2012         1,775,877     -  
Due August, 2012         2,115,343     -  
Due September, 2012         2,012,136     -  
Subtotal         14,581,278     4,485,186  
Total         16,408,388     7,214,395  

 

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

 

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

 

F-15
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 7 – DUE FROM/TO RELATED PARTIES

 

(I)Due To Related Parties

 

       March 31,
2012
   June 30,
2011
 
             
Jin Xin   (a)   $2,509   $373 
Liu Dianjun   (b)    389,397    53,154 
Li Zengshan   (c)    69,878    79,072 
Total due to related parties       $461,784   $132,599 

 

(II)Due From Employees

 

       March 31,
2012
   June 30,
2011
 
             
Current       $82,186   $39,206 
Total due from employees   (f)   $82,186   $39,206 

 

(III)Due To Employees

 

       March 31,
2012
   June 30,
2011
 
             
Current       $106,615   $78,953 
Total due to employees   (g)   $106,615   $78,953 

 

(a)Jin Xin is a shareholder of the Company and the chairman of Jinma, a subsidiary of the Company. The payable balance represented business related expenses paid by Jinxin on behalf of the Company, which was unsecured, interest-free and had no fixed repayment term.

 

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

 

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

 

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

 

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

 

F-16
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 8 – LAND USE RIGHTS, NET

 

Land use rights consist of the following:

 

   March 31,
2012
   June 30,
2011
 
         
Cost of land use rights  $2,557,914   $1,087,939 
Less: Accumulated amortization   (203,067)   (162,699)
Land use rights, net  $2,354,847   $925,240 

 

Amortization expense for the nine months ended March 31, 2012 and 2011 was $40,368 and $17,361, respectively.

 

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

 

2012 (nine months)  $40,367 
2013   53,823 
2014   53,823 
2015   53,823 
2016   53,823 
Thereafter   2,099,188 
Total  $2,354,847 

 

Two land use rights with an aggregate net book value of $52,993 and $52,995 at March 31, 2012 and June 30, 2011, respectively, were registered in the names of two management members of the Company. The Company’s legal counsel has confirmed the ownership of these two land use rights by the Company. The Company estimates that the application for the transfer of the certificates of these two land use rights will be completed by the end of June 2012. The one land use right was pledged as collateral for bank loans borrowed by Li Zengshan (shareholder of the Company) in the amount of $250,894. Also see Note 14.

 

F-17
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 9 – PLANT AND EQUIPMENT, NET

 

Plant and equipment consist of the following:

 

   March 31,
 2012
   June 30,
2011
 
         
Buildings  $3,232,050   $2,970,474 
Machinery and equipment   2,033,348    1,176,778 
Office equipment   63,681    60,458 
Motor vehicles   483,820    553,238 
    5,812,899    4,760,948 
Less : Accumulated depreciation          
Buildings   (641,891)   (551,032)
Machinery and equipment   (913,936)   (759,902)
Office equipment   (48,963)   (43,336)
Motor vehicles   (317,781)   (325,316)
    (1,922,571)   (1,679,586)
Plant and equipment, net  $3,890,328   $3,081,362 

 

Depreciation expense for the nine months ended March 31, 2012 and 2011 was $263,228 and $200,353, respectively.

 

At March 31, 2012, the legal title to three motor vehicles with a total net book value of $51,160 and were registered in the names of management members of the Company. The Company’s legal counsel has confirmed the ownership of the motor vehicles and office buildings by the Company. The Company estimates the transfer of the legal titles of the three motor vehicles will be completed by the end of June 2012.

 

One office building was pledged as collateral for bank loans borrowed by Li Zengshan (a shareholder and officer of the Company) in the amount of $250,894. Also see Note 14.

 

Application for ownership certificates of eleven buildings with an aggregate net book value of $1,071,724 is in progress. The Company’s legal counsel has confirmed the ownership of the eleven buildings by the Company. The application for the certificates of the buildings is expected to be completed by the end of June 2012.

 

F-18
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 10 – SHORT-TERM BANK LOANS

 

Short-term bank loans consist of the following:

 

   March 31,
2012
   June 30,
2011
 
Weifang Bank:          
           
Monthly interest only payments at 9.88% per annum, due January 24, 2012, guaranteed by Weifang Hengyuan Oil Pump & Oil fitting Co., Ltd. (Repaid on its due date)  $-   $309,430 
           
Monthly interest only payments at 7.43% per annum, due July 22, 2011, guaranteed by Weifang Hengyuan Oil Pump & Oil fitting Co., Ltd. (Repaid on its due date)   -    618,860 
           
Monthly interest only payments at 8.83% per annum, due February 27, 2012, guaranteed by Weifang Hengyuan Oil Pump & Oil fitting Co., Ltd.   -    309,430 
           
Monthly interest only payments at 9.18% per annum, due July 21, 2012, guaranteed by Weifang Hengyuan Oil Pump & Oil fitting Co., Ltd.   633,693    - 
           
Monthly interest only payments at 9.18% per annum, due February 6, 2013, guaranteed by Weifang Hengyuan Oil Pump & Oil fitting Co., Ltd.   316,847    - 
           
Bank of Communication:          
           
Monthly interest only payments at 9.18% per annum, due January 12, 2013, guaranteed by Weifang Huaxin Diesel Engine Co.,Ltd.. (Repaid on its due date)   316,847    - 
           
China Construction Bank:          
           
Monthly interest only payments at 5.84% per annum, due July 29, 2011, collateralized by land use rights. (Repaid on its due date)   -    309,430 
           
Monthly interest only payments at 6.39% per annum, due January 9, 2012, guaranteed by Weifang Jinma Diesel Engine Co.,Ltd. and Weifang Hengyuan Oil Pump & Oil fitting Co., Ltd. (Repaid on its due date)   -    1,083,004 
           
Bank of China:          
           
Monthly interest only payments at 7.87% per annum, due July 14, 2012, guaranteed by Weifang Hengyuan Oil Pump & Oil fitting Co., Ltd.   316,847    - 
F-19
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE10- SHORT-TERM BANK LOANS (CONTINUED)

 

   March 31,
2012
   June 30,
2011
 
Bank of China:          
           
Monthly interest only payments at 7.5% per annum, due July 5, 2012, guaranteed by Weifang Hengyuan Oil Pump & Oil fitting Co., Ltd.   1,061,436    - 
Total  $2,645,670   $2,630,154 

 

Interest expense for short-term bank loans for the nine months ended March 31, 2012 and 2011 was $267,078 and $261,284, respectively.

 

NOTE 11 – NOTES PAYABLE, INCLUDING RELATED PARTIES

 

Notes payable consist of the following:

       March 31,
2012
   June 30,
2011
 
Notes payable to an unrelated individual:               
                
Due August 4, 2011, interest at 14.40% per annum with the principal payable at the due date. (Repaid on its due date)        -    456,409 
Due October 1, 2011, interest free with the principal payable at the due date. (Repaid on its due date)        -    6,568 
Due November 27, 2011, interest at 12% per annum with the principal payable at the due date. (Repaid on its due date)        -    154,715 
Due May 4, 2012, interest at 14.36% per annum with the principal payable at the due date.        402,395    392,976 
Due May 4, 2012, interest at 12% per annum with the principal payable at the due date.        152,086    148,526 
Due June 30, 2012, interest at 12% per annum with the principal payable at the due date.        158,424    - 
Due February 9, 2013, interest at 12% per annum with the principal payable at the due date.        31,685    - 
Subtotal        744,590    1,159,194 
Notes payable to related individuals:               
                
Due December 24, 2011, interest at 10% per annum with the principal payable at the due date   (a)    -    100,565 
Due June 28, 2012, interest at 10% per annum with the principal payable at the due date   (a)    -    54,150 
Due July 2, 2013, interest at 12% per annum with the principal payable at the due date   (a)    94,816    - 
Subtotal        94,816    154,715 
                
Total       $839,406   $1,313,909 

 

F-20
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 11 – NOTES PAYABLE, INCLUDING RELATED PARTIES (CONTINUED)

 

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

 

Notes payable to an unrelated individual are unsecured.

 

NOTE 12 – LONG -TERM NOTES PAYABLE TO RELATED PARTIES

 

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

       March 31,
2012
   June 30,
2011
 
Notes payable to related individuals:               
Due August 4, 2014, monthly interest payment at 7.46% per annum. Principal and interest are repaid every month in 60 equal installments from August 4, 2009.   (a)   $250,894   $312,531 
Total long-term notes payable        250,894    312,531 
 Less: Current portion        (98,382)   (90,864)
Long-term portion       $152,512   $221,667 

 

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

 

Years Ended March 31,  Amount 
2013  $98,382 
2014   105,982 
2015   46,530 
Total  $250,894 

 

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

 

F-21
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 13 – TAXES

 

(a)Corporation Income Tax (“CIT”)

 

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

 

The Company received written authorization from the local Chinese government to defer the payment of its current income tax due of approximately $12.7 million in anticipation of future exemptions from the local tax bureau.

 

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

 

Under ASC 740-10, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of March 31, 2012, the Company does not have a liability for unrecognized tax benefits.

 

The Company’s income tax expense for the nine months ended March 31, 2012 and 2011 are summarized as follows:

 

   March 31,
2012
   March 31,
2011
 
Current:          
Provision for CIT  $2,774,037   $1,974,705 
           
Deferred:          
Provision for CIT   (361,335)   410,783 
           
Income tax expense  $2,412,702   $2,385,488 

 

F-22
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 13 – TAXES (CONTINUED)

 

The Company’s income tax expense differs from the “expected” tax expense for the nine months ended March 31, 2012 and 2011 (computed by applying the CIT rate of 25% percent to income before income taxes) as follows:

 

   March 31,
2012
   March 31,
2011
 
           
Computed “expected” expense  $2,602,931   $4,225,754 
Permanent differences   (190,229)   (844,079)
Favourable tax rates   -    (996,187)
           
Income tax expense  $2,412,702   $2,385,488 

 

The tax effects of temporary differences that give rise to the Company’s net deferred tax assets and liabilities as of March 31, 2012 and June 30, 2011 are as follows:

 

   March 31,
2012
   June 30,
2011
 
Deferred tax assets:          
Current portion:          
Sales   -    462 
Bad debt provision  $138,762   $164,010 
Other expenses   306,623    231,700 
Subtotal  $441,385   $396,172 
           
Deferred tax liabilities:          
Current portion:          
Sales cut-off  $(920,032)  $(1,256,924)
Others   (119,584)   (77,128)
Subtotal   (1,039,616)   (1,334,052)
           
Net deferred tax (liabilities) assets - current portion  $(598,231)  $(937,880)
Deferred tax assets:          
Non-current portion:          
Depreciation  $160,436   $132,055 
Amortization   (1,760)   4,937 
Subtotal   158,676    136,992 
           
Net deferred tax assets - non-current portion   158,676    136,992 
           
Total net deferred tax (liabilities) assets  $(439,555)  $(800,888)

 

F-23
 

 

XINDE TECHNOLOGY COMPANY

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for the THREE AND Nine MONTHS ENDED MARCH 31, 2012 and 2011

(UNAUDITED)

 

NOTE 13 – TAXES (CONTINUED)

 

(b)Tax Holiday Effect

 

For the nine months ended March 31, 2012 and 2011 the PRC corporate income tax rate was 25%. Certain subsidiaries of the Company are entitled to favorable tax rates for the periods ended March 31, 2012 and 2011.

 

The pro forma combined effects of the favorable tax rates available to the Company for the nine months ended March 31, 2012 and 2011 are as follows:

   For The Nine Months Ended
March 31,
 
   2012   2011 
Tax holiday effect  $-   $996,187 
Basic net income per share effect  $-   $(0.00)

 

(c)Value Added Tax (“VAT”)

 

Enterprises or individuals, who sell commodities, engage in repair and maintenance or import or export goods in the PRC are subject to a value added tax in accordance with Chinese Laws. The value added tax standard rate is 17% of the gross sale price, and the Company records its revenue net of VAT. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on the sales of the finished products.

 

In the nine months ended March 31, 2012, output VAT payable of $659,708 was exempted by the local tax bureau to honor the Company’s continuous contribution to the local economy and its achievement of becoming a United States public reporting company, resulting in other income of $659,708 which was reflected in the accompanying condensed consolidated statements of income and comprehensive income for the nine months ended March 31, 2012.

 

The VAT payable was $36,011,775 and $26,331,151 at March 31, 2012 and June 30, 2011, respectively. The Company received written authorization from the local tax authorities to defer the payment of its current VAT payable in anticipation of additional future exemptions from the local tax bureau.

 

NOTE 14 – CONTINGENCIES

 

On August 4, 2009, Hengyuan entered into a guarantee contract to serve as guarantor for bank loans borrowed by Mr. Li Zengshan, a shareholder and officer of the Company, from the Industrial and Commercial Bank of China with a guarantee amount of $250,894. Under this guarantee contract, a land use right and an office building of Hengyuan were pledged for the bank loans. (Also see Notes 9 and 10)

 

A default by Mr. Li Zengshan is considered remote by management. No liability for the guarantor’s obligation under the guarantee contract was recognized as of March 31, 2012.

 

F-24
 

  

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

 

Forward Looking Statements

 

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

 

Notable Corporate Action

 

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

 

Summary of the Company’s Current Business

 

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

 

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

 

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

 

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

 

-25-
 

 

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

  

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

 

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

 

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

 

 

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

 

-26-
 

 

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

 

Critical Accounting Policies, Estimates and Assumptions

 

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

 

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

 

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

 

Fair Value of Financial Instruments

 

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

 

These tiers include:

 

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

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

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

 

The assets measured at fair value on a recurring basis subject to the disclosure requirements of ASC 820-10 as of March 31, 2012 are as follows:

 

       Fair Value Measurements at Reporting Date Using 
   Carrying
Value
as of
March 31,
2012
   Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
   Significant
Other
Observable
Inputs
(Level 2)
   Significant
Unobservable
Inputs (Level
3)
 
                     
Long-term notes payable  $152,512   $-   $152,512   $- 

 

-27-
 

 

The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, notes receivable, prepayments for goods, short-term bank loans, accounts payable, customer deposits, short-term notes payable, due to employee, due to related parties and other payables, approximate their fair values because of the short maturity of these instruments. The fair value of the Company’s long-term notes payable is estimated based on the current rates offered to the Company for debt of similar terms and maturities. Under this method, the Company’s fair value of long-term notes payable was not significantly different from the carrying value at March 31, 2012.

 

Cash and Cash Equivalents

 

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

 

Inventories

 

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

 

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

 

Plant and Equipment

 

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

 

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

 

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

 

Land Use Rights

 

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

 

Revenue Recognition

 

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

 

-Persuasive evidence of an arrangement exists,

-Delivery has occurred or services have been rendered,

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

-Collectability is reasonably assured.

 

-28-
 

 

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

 

The Company offers warranties on its products for periods between six and twelve months after the sale. The Company estimates the warranty reserves based on historical records and identical or similar types on the market. Warranty expenses related to product sales are charged to the consolidated statements of income and comprehensive income in the period in which sales is recognized. During the nine months ended March 31, 2012 and 2011, warranty expense was $306,395 and $388,994, respectively, and is included in selling and marketing expenses in the accompanying consolidated statements of income and comprehensive income.

 

 Foreign Currency Translation

 

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

 

   March 31,
2012
   June 30,
2010
   March 31,
2011
 
Period ended RMB:  US$ exchange rate   6.3122    6.4635    6.5501 
Average RMB:  US$ exchange rate for three months ended   6.2976    -    6.5713 
Average RMB:  US$ exchange rate for nine months ended   6.3517    -    6.6610 

 

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

 

Segment

 

The Company operates in one business segment, the design, development, manufacture and commercialization of fuel injection pumps, injectors, multi-cylinder diesel engines and small generator units mainly in the PRC. Our sales made outside of the PRC were insignificant for the three months ended March 31, 2012 and 2011.

 

Results of Operations for the Three Months Ended March 31, 2012 Compared to the Three Months Ended March 31, 2011

 

The following table sets forth the amounts and the percentage relationship to revenues of certain items in our consolidated statements of income for the three months ended March 31, 2012 and 2011:

 

   For the Three Months Ended March 31, 
             
   2012   2011   Comparisons 
   Amount   % of
Revenues
   Amount   % of
Revenues
   Change in
Amount
   Change in
%
 
    $         $         $      
REVENUES, NET   21,891,994    100%   27,596,387    100%   (5,704,393)   (21)%
                               
COST OF GOODS SOLD   (16,657,130)   (76)%   (21,723,469)   (79)%   5,066,339    (23)%
GROSS PROFIT   5,234,864    24%   5,872,918    21%   (638,054)   (11)%

  

-29-
 

 

   For the Three Months Ended March 31, 
             
   2012   2011   Comparisons 
   Amount   % of
Revenues
   Amount   % of
Revenues
   Change in Amount   Change in
%
 
    $         $         $      
Selling and marketing   (421,438)   (2)%   (693,989)   (3)%   272,551    (39)%
General and administrative   (1,053,907)   (5)%   (855,401)   (3)%   (198,506)   23%
Bad debt recoveries   8,416    0.04%   137,324    0.5%   (128,908)   (94)%
INCOME FROM OPERATIONS   3,767,935    17%   4,460,852    16%   (692,917)   (16)%
                               
Interest expense, net   (47,541)   (0.22)%   (97,592)   (0.4)%   50,051    (51)%
Other income, net   6,534    0.03%   4,587    0.02%   1,947    42%
Exempted value added tax   -    -    -    -    -    - %
INCOME FROM OPERATIONS BEFORE INCOME TAXES   3,726,928    17.02%   4,367,847    16%   (640,919)   (15)%
INCOME TAXES   (926,104)   (4.23)%   (736,813)   (3)%   (189,291)   26%
NET INCOME   2,800,824    12.79%   3,631,034    13%   (830,210)   (23)%
OTHER COMPREHENSIVE INCOME                              
Foreign currency translation gain   550,611    2.52%   596,072    2%   (45,461)   (8)%
                               
COMPREHENSIVE INCOME   3,351,435    15.31%   4,227,106    15%   (875,671)   (21)%

  

Revenues

 

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

 

   For the Three Months Ended March 31, 
   2012   2011   Comparisons 
   Amount   % of
Revenues
   Amount   % of
Revenues
   Change in
Amount
   Change in % 
    $         $         $      
Revenues:                               
Electric pumps    2,432,558    11%   3,562,937    13%   (1,130,379)   (32)%
Multi-cylinder pumps   6,039,780    28%   7,684,442    28%   (1,644,662)   (21)%
Single-cylinder pumps    213,692    1%   525,174    2%   (311,482)   (59)%
Fuel muzzles    1,246,785    6%   2,204,576    8%   (957,791)   (43)%
Parts    171,995    1%   460,888    2%   (288,893)   (63)%
Diesel engines    10,028,303    46%   11,392,991    41%   (1,364,688)   (12)%
Generator sets    1,739,449    8%   2,261,918    8%   (522,469)   (23)%
Accessories    23,430    0.11%   (487,370)   (2)%   510,800    (105)%
Less: sales tax    (3,998)   (0.02)%   (9,169)   (0.03)%   5,171    (56)%
Total   21,891,994    100%   27,596,387    100%   (5,704,393)   (21)%

  

 Our revenues decreased by 21% to $21,891,994 for the three months ended March 31, 2012 from $27,596,387 for the three months ended March 31, 2011. This decrease was primarily attributable to a decrease in the sales of diesel engines, multi-cylinder pumps and electric pumps, which decreased by 12%, 21% and 32% and accounted for 46%, 28% and 11% of our total revenue, respectively, for the three months ended March 31, 2012.

 

-30-
 

  

The main reason for this decline was attributable to: (i) after June 2011, the electricity shortage problem in China has been effectively controlled, meanwhile, as a result of the PRC government’s policy of controlling inflation, development in infrastructure in the PRC has slowed, which has resulted in less demand in the market related to diesel engines and generator sets compared with the same period in 2011, (ii) our reduction in the production of our older style products. Since high-end products with greater power are becoming the focus products of the diesel engine industry in the PRC, we adjusted our product structure to introduce more products with greater engine power to accommodate this new trend. Moving forward, our plan is to focus on the greater power diesel engines and generator sets market, which we believe is expected to continue to grow, as well as emerging markets in the North of China to the extent that we can be profitable in such markets, (iii) the implementation by the Chinese government of tighter monetary policies. For example, increases in lending interest rates have curtailed domestic spending which also adversely impacted the diesel engines and generator sets market and (iv) as a response to the declining market and the overall credit policy in China, we now impose stricter standards when we choose our customers. Although this has led to fewer sales, management believes that this strategy will lead to increased cash flow in the long-term.

 

Cost of Goods Sold

 

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

 

   For the Three Months Ended March 31, 
   2012   2011   Comparisons 
   Amount   % of
Cost of Sales
   Amount   % of
Cost of Sales
   Change in
Amount
   Change in
%
 
    $         $         $      
Costs of Goods Sold:                               
Electric pumps    1,669,479    10%   2,504,323    12%   (834,844)   (33)%
Multi-cylinder pumps    3,935,291    24%   5,119,009    24%   (1,183,718)   (23)%
Single-cylinder pumps    237,288    1%   477,229    2%   (239,941)   (50)%
Fuel muzzles    1,097,702    7%   1,907,840    9%   (810,138)   (42)%
Parts    233,638    1%   423,310    2%   (189,672)   (45)%
Diesel engines    8,178,427    49%   9,433,179    43%   (1,254,752)   (13)%
Generator sets    1,213,110    7%   1,721,816    8%   (508,706)   (30)%
Accessories    13,309    0.1%   30,122    0.1%   (16,813)   (56)%
Sales warranty   78,886    0.5%   106,641    0.5%   (27,755)   (26)%
Total    16,657,130    100%   21,723,469    100%   (5,066,339)   (23)%

 

Our cost of goods sold decreased by 23%, or $5,066,339, to $16,657,130 for the three months ended March 31, 2012 from $21,723,469 for the three months ended March 31, 2011. This decrease was in line with the decrease in product sales during the same period.

 

Gross Profit and Gross Margin

 

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

 

-31-
 

 

   For the Three Months Ended March 31, 
   2012   2011   Comparisons 
   Amount   Gross
Margin
   Amount   Gross
Margin
   Change in
Amount
   Change in Gross
Margin
 
   $             $     
Gross Profit and Gross Margin:                              
Electric pumps   763,079    31%   1,058,614    30%   (295,535)   1%
Multi-cylinder pumps   2,104,489    35%   2,565,433    33%   (460,944)   2%
Single-cylinder pumps   (23,596)   (11)%   47,945    9%   (71,541)   (20)%
Fuel muzzles   149,083    12%   296,736    13%   (147,653)   (1)%
Parts   (61,643)   (36)%   37,578    8%   (99,221)   (44)%
Diesel engines   1,849,876    18%   1,959,812    17%   (109,936)   5%
Generator sets   526,339    30%   540,102    24%   (13,763)   6%
Accessory   10,121    43%   (517,492)   106%   527,613    (63)%
Less: sales tax   (3,998)   -    (9,169)   -    5,171    - 
Sales warranty   (78,886)   -    (106,641)   -    27,755    - 
Total   5,234,864    24%   5,872,918    21%   (638,054)   3%

 

Although our gross profit decreased by $638,054 to $5,234,864 for the three months ended March 31, 2012 as compared with $5,872,918 for the three months ended March 31, 2011, our margin for the three months ended March 31, 2012 increased by 3% from the three months ended March 31, 2011. This was mainly due to the fact that we (i) adjusted the sales price for popular diesel engines upward as a response to the increase in market demand and (ii) started to adjust product mix by introducing more products with higher gross margins.

 

We believe that our overall average gross margin will increase as we expand our high-margin products.

 

Selling and Marketing Expenses

 

Our selling and marketing expenses primarily include sales commission fees, payroll, travel costs and freight fees. Our selling and marketing expenses accounted for 2% of our revenues for the three months ended March 31, 2012. Selling and marketing expenses decreased by 39%, or $272,551, to $421,438 for the three months ended March 31, 2012 from $693,989 for the three months ended March 31, 2011. This decrease was primarily due to a decrease of $277,211 in total sales commission fees which was in line with our decrease in revenues as discussed above and increase in promotional fees in connection with sales activities.

 

General and Administrative Expenses

 

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

 

Our general and administrative expenses increased by 23%, or $198,506, to $1,053,907 for the three months ended March 31, 2012 from $855,401 for the three months ended March 31, 2011. This increase was primarily due to the increase of $116,628 in bad debt provision. Our general and administrative expenses were approximately 5% of revenues, which increased 2% from the three months ended March 31, 2011.

 

Income from Operations

 

As a result of the foregoing, our income from operations decreased by 16%, or $692,917, to $3,767,935 for the three months ended March 31, 2012 from $4,460,852 for the three months ended March 31, 2011.

 

-32-
 

 

Interest Expense, Net

 

For the three months ended March 31, 2012 and 2011, interest expense, net was $47,541 and $97,592, or 0.22% and 0.35% of our revenues, respectively. This decrease was mainly due to the increase in interest income of $62,051.

 

Other Income, Net

 

Other income, net was $6,534 for the three months ended March 31, 2012 compared to other income of $4,587 for the three months ended March 31, 2011 an increase of $1,947, or 42%. This increase was primarily due to a decrease of $7,003 from the compensation.

 

Exempted Value Added Tax

 

We did not have any exempted value added tax during the three months ended March 31, 2012.

 

Income Tax Expense

 

Our income tax expenses increased by 26%, or $189,291, to $926,104 for the three months ended March 31, 2012 from $736,813 for the three months ended March 31, 2011.

 

In accordance with the relevant tax laws and regulations of the PRC, the applicable corporate income tax rate for our subsidiaries Hengyuan, Jinma and Huaxin is 25%. However, prior to January 2011, Jinma and Huaxin were defined by the local tax bureau as tax payers subject to the “Verification Collection” method, according to which the amount of income taxes paid is determined by the local tax bureau based on certain criteria instead of applying the CIT rate of 25%, which is much smaller than the result from the normal computation by applying the CIT rate of 25%.

 

The consolidated effective tax rate for the Company during the three months ended March 31, 2012 increased to 24.8% from 16.9% during the three months ended March 31, 2011, which is mainly attributable to the change of the income tax computation method of Jinma and Huaxin from the favorable “Verification Collection” method to the normal approach by applying the income tax rate of 25%.

 

Net Income

 

Primarily as a result of the foregoing, our net income decreased by 23%, or $830,210, to $2,800,824 for the three months ended March 31, 2012 from $3,631,034 for the three months ended March 31, 2011.

 

Results of Operations for the Nine Months Ended March 31, 2012 Compared to the Nine Months Ended March 31, 2011

 

The following table sets forth the amounts and the percentage relationship to revenues of certain items in our consolidated statements of income for the nine months ended March 31, 2012 and 2011:

 

   For the Nine Months Ended March 31, 
     
   2012   2011   Comparisons 
   Amount   % of
Revenues
   Amount   % of
Revenues
   Change in
Amount
   Change in
%
 
    $         $         $      
REVENUES, NET   64,198,126    100.00%   90,848,899    100%   (26,650,773)   (29)%
                               
COST OF GOODS SOLD   (51,065,666)   (79.54)%   (73,913,022)   (81)%   22,847,356    (31)%
GROSS PROFIT   13,132,460    20.46%   16,935,877    19%   (3,803,417)   (22)%

  

-33-
 

 

   For the Nine Months Ended March 31, 
             
   2012   2011   Comparisons 
   Amount   % of
Revenues
   Amount   % of
Revenues
   Change in
Amount
   Change in
%
 
    $         $         $      
Selling and marketing   (1,267,998)   (1.98)%   (2,445,004)   (3)%   1,177,006    (48)%
General and administrative   (2,173,543)   (3.39)%   (1,619,965)   (2)%   (553,578)   34%
Bad debt recoveries   115,991    0.18%   800,298    1%   (684,307)   (86)
INCOME FROM OPERATIONS   9,806,910    15.28%   13,671,206    15%   (3,864,296)   (28)%
                               
Interest expense, net   (113,477)   (0.18)%   (302,091)   (0.33)%   188,614    (62)%
Other income, net   58,584    0.09%   244,868    0.27%   (186,284)   (76)%
Exempted value added tax   659,708    1.03    3,289,036    4%   (2,629,328)   (80)%
INCOME FROM OPERATIONS BEFORE INCOME TAXES   10,411,725    16.22%   16,903,019    19%   (6,491,294)   (38)%
INCOME TAXES   (2,412,702)   (3.76)%   (2,385,488)   (3)%   (27,214)   1%
NET INCOME   7,999,023    12.46%   14,517,531    16%   (6,518,508)   (45)%
OTHER COMPREHENSIVE INCOME                              
Foreign currency translation gain   1,989,157    3.10%   2,416,089    3%   (426,932)   (18)%
                               
COMPREHENSIVE INCOME   9,988,180    15.56%   16,933,620    19%   (6,945,440)   (41)%

  

Revenues

 

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

 

   For the Nine Months Ended March 31, 
   2012   2011   Comparisons 
   Amount   % of
Revenues
   Amount   % of
Revenues
   Change in
Amount
   Change in % 
    $         $         $      
Revenues:                               
Electric pumps    5,878,719    9%   9,130,229    10%   (3,251,510)   (36)%
Multi-cylinder pumps   16,282,932    25%   26,168,143    29%   (9,885,211)   (38)%
Single-cylinder pumps    590,486    1%   1,612,929    2%   (1,022,443)   (63)%
Fuel muzzles    2,926,742    5%   5,477,690    6%   (2,550,948)   (47)%
Parts    419,130    1%   830,213    1%   (411,083)   (50)%
Diesel engines    24,720,681    39%   34,474,509    38%   (9,753,828)   (28)%
Generator sets    12,894,253    20%   12,296,631    14%   597,622    5%
Accessories    505,335    1%   884,174    1%   (378,839)   (43)%
Less: sales tax    (20,152)   (0.03)%   (25,619)   (0.03)%   5,467    (21)%
Total   64,198,126    100%   90,848,899    100%   (26,650,773)   (29)%

  

 Our revenues decreased by 29% to $64,198,126 for the nine months ended March 31, 2012 from $90,848,899 for the nine months ended March 31, 2011. This decrease was primarily attributable to a decrease in the sales of diesel engines and multi-cylinder pumps, which decreased by 28% and 38% and accounted for 39% and 25% of our total revenue, respectively, for the nine months ended March 31, 2012.

 

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The main reason for this decline was attributable to: (i) the fact that after June 2011, the electricity shortage problem in China has been effectively controlled, meanwhile, as a result of the PRC government’s policy of controlling inflation, development in infrastructure in the PRC has slowed, which has resulted in less demand in the market for diesel engines and generator sets compared with the same period in 2011, (ii) our reduction in the production of our older style products. Since high-end products with greater power are becoming the focus products of the diesel engine industry in the PRC, we adjusted our product structure to introduce more products with greater engine power to accommodate this new trend. Moving forward, our plan is to focus on the greater power diesel engines and generator sets market, which we believe is expected to continue to grow, as well as emerging markets in the North of China to the extent that we can be profitable in such markets, (iii) the implementation by the Chinese government of tighter monetary policies; For example, increases in lending interest rates have curtailed domestic spending which also adversely impacted the diesel engines and generator sets market and (iv) as a response to the declining market and the overall credit policy in China, we now impose stricter standards when we choose our customers. Although this has led to fewer sales, management believes that this strategy will lead to increased cash flow in the long-term.

 

Cost of Goods Sold

 

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

 

   For the Nine Months Ended March 31, 
   2012   2011   Comparisons 
   Amount   % of
Cost of Sales
   Amount   % of
Cost of Sales
   Change in
Amount
   Change in
%
 
    $         $         $      
Costs of Goods Sold:                               
Electric pumps    4,191,924    8%   6,622,256    9%   (2,430,332)   (37)%
Multi-cylinder pumps    11,476,600    22%   18,190,058    25%   (6,713,458)   (37)%
Single-cylinder pumps    610,818    1%   1,332,455    2%   (721,637)   (54)%
Fuel muzzles    2,497,839    5%   4,815,771    7%   (2,317,932)   (48)%
Parts    504,520    1%   813,175    1%   (308,655)   (38)%
Diesel engines    19,887,037    39%   30,330,399    41%   (10,443,362)   (34)%
Generator sets    11,153,135    22%   10,347,819    14%   805,316    8%
Accessories    437,398    1%   1,072,095    1%   (634,697)   (59)%
Sales warranty   306,395    1%   388,994    1%   (82,599)   (21)%
Total    51,065,666    100%   73,913,022    100%   (22,847,356)   (31)%

 

Our cost of goods sold decreased by 31%, or $22,847,356, to $51,065,666 for the nine months ended March 31, 2012 from $73,913,022 for the nine months ended March 31, 2011. This decrease was in line with the decrease in product sales during the same period.

 

Gross Profit and Gross Margin

 

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

 

-35-
 

 

   For the Nine Months Ended March 31, 
   2012   2011   Comparisons 
   Amount   Gross
Margin
   Amount   Gross
Margin
   Change in
Amount
   Change in Gross
Margin
 
   $       $       $     
Gross Profit and Gross Margin:                              
Electric pumps    1,686,795    29%   2,507,973    27%   (821,178)   1%
Multi-cylinder pumps    4,806,332    30%   7,978,085    30%   (3,171,753)   (1)%
Single-cylinder pumps    (20,332)   (3)%   280,474    17%   (300,806)   (21)%
Fuel muzzles    428,903    15%   661,919    12%   (233,016)   3%
Parts    (85,390)   (20)%   17,038    2%   (102,428)   (22)%
Diesel engines    4,833,644    20%   4,144,110    12%   689,534    8%
Generator sets    1,741,118    14%   1,948,812    16%   (207,694)   (2)%
Accessory    67,937    13%   (187,921)   (21)%   255,858    34%
Less: sales tax    (20,152)   -    (25,619)   -    5,467    - 
Sales warranty   (306,395)   -    (388,994)   -    82,599    - 
Total    13,132,460    20%   16,935,877    19%   (3,803,417)   1%

  

Although our gross profit decreased by $3,803,417 to $13,132,460 for the nine months ended March 31, 2012 as compared with $16,935,877 for the nine months ended March 31, 2011, our margin for the nine months ended March 31, 2012 increased by 1% from the nine months ended March 31, 2011. This was mainly due to the Company’s efforts since July 2010 to adjust its product structure by introducing more products with higher gross margins and reducing the production and sales scale for products of older style diesel engines and generator sets with lower gross margins. Additionally, we raised the prices of certain popular products such as our electric pumps and diesel engines.

 

We believe that our overall average gross margin will increase as we expand our high-margin products.

 

Selling and Marketing Expenses

 

Our selling and marketing expenses primarily include sales commission fees, payroll, travel costs and freight fees. Our selling and marketing expenses accounted for 2% of our revenues for the nine months ended March 31, 2012. Selling and marketing expenses decreased by 48%, or $1,177,006, to $1,267,998 for the nine months ended March 31, 2012 from $2,445,004 for the nine months ended March 31, 2011. This decrease was primarily due to a decrease of $653,981 in total sales commission fees which was in line with our decrease in revenues as discussed above and increase in promotional fees in connection with sales activities.

 

General and Administrative Expenses

 

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

 

Our general and administrative expenses increased by 34%, or $553,578, to $2,173,543 for the nine months ended March 31, 2012 from $1,619,965 for the nine months ended March 31, 2011. This increase was primarily due to the increase of $528,220 in bad debt provision. Our general and administrative expenses were approximately 3.39% of revenues, which increased 1.39% from the nine months ended March 31, 2011.

 

-36-
 

 

Income from Operations

 

As a result of the foregoing, our income from operations decreased by 28%, or $3,864,296 to $9,806,910 for the nine months ended March 31, 2012 from $13,671,206 for the three months ended March 31, 2011.

 

Interest Expense, Net

 

For the nine months ended March 31, 2012 and 2011, interest expense, net was $113,477 and $302,091, or 0.18% and 0.33% of our revenues, respectively. This decrease was mainly due to the increase in interest income of $221,399.

 

Other Income, Net

 

Other income, net was 58,584 for the nine months ended March 31, 2012 compared to other income of $244,868 for the nine months ended March 31, 2011 a decrease of $186,284, or 76%. This increase was primarily due to a decrease of $186,284 from the compensation, social security subsidy and forgiveness of account payable.

 

Exempted Value Added Tax

 

To honor our on-going contributions to the local economy and our achievement of becoming a public company in the United States, the local tax bureau exempted our output VAT payable of $659,708 and $3,289,036 for nine months ended March 31, 2012 and 2011, respectively, which was recorded as exempted value added tax in the accompanying condensed consolidated statements of income and comprehensive income for the nine months ended March 31, 2012 and 2011.

 

Income Tax Expense

 

Our income tax expenses increased by 1%, or $27,214, to $2,412,702 for the nine months ended March 31, 2012 from $2,385,488 for the nine months ended March 31, 2011.

 

In accordance with the relevant tax laws and regulations of the PRC, the applicable corporate income tax rate for our subsidiaries Hengyuan, Jinma and Huaxin is 25%. However, prior to January 2011, Jinma and Huaxin were defined by the local tax bureau as tax payers subject to the “Verification Collection” method, according to which the amount of income taxes paid is determined by the local tax bureau based on certain criteria instead of applying the CIT rate of 25%, which is much smaller than the result from the normal computation by applying the CIT rate of 25%.

 

The consolidated effective tax rate for the Company during the nine months ended March 31, 2012 increased to 23% from 14% during the nine months ended March 31, 2011, which is mainly attributable to the change of the income tax computation method of Jinma and Huaxin from the favorable “Verification Collection” method to the normal approach by applying the income tax rate of 25%.

 

Net Income

 

Primarily as a result of the foregoing, our net income decreased by 45%, or $6,518,508, to $7,999,023 for the nine months ended March 31, 2012 from $14,517,531 for the nine months ended March 31, 2011.

 

Liquidity and Capital Resources

 

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

 

-37-
 

  

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

 

   Nine Months Ended 
March 31,
 
   2012   2011 
   $   $ 
         
Net cash used in operating activities    2,414,521    50,091 
Net cash provided by (used in) investing activities    742,060    (355,758)
Net cash used in financing activities    (618,780)   (987,168)
Net decrease in cash and cash equivalents    (2,291,241)   (1,393,017)
Effect of exchange rate changes on cash    1,956,707    1,159,797 
Cash and cash equivalents at beginning of period    4,292,507    3,399,360 
Cash and cash equivalents at end of period    3,957,974    3,166,140 

 

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

 

Operating Activities

 

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

 

Net cash used in operating activities was $2,414,521 for the nine months ended March 31, 2012, which is primarily attributable to our net income of $7,999,023, as adjusted by the increase in value added tax payable of $10,340,333, the increase in prepayments for goods of $1,361,273, the increase in bank acceptance notes of $10,096,092 and an increase in inventories of $15,063,919, offset by a decrease in accounts receivable of $3,974,453 and a decrease in accounts payable of $1,693,032.

 

Net cash used in operating activities was $50,091 for the nine months ended March 31, 2010, which is primarily attributable to our net income of $14,517,531, as adjusted by the increase in value added tax payable of $14,438,119, an increase in taxes payable of $2,190,968, an increase in bank acceptance notes of $3,092,045, an increase in accounts receivable of $8,444,297 and an increase in inventories of $15,626,355, offset by a decrease in exempted value added tax of $3,289,036.

 

This increase was primarily attributable to significantly decreased accounts receivable as a result of the decline in the overall demand in the diesel engines and generator sets market due to the tightened credit policy in China offset by the increase in inventories to prepare for production in the upcoming peak season in the northern China market.

 

Investing Activities

 

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

 

-38-
 

 

Net cash provided by investing activities was $742,060 for the nine months ended March 31, 2012, which is primarily attributable to an increase in the issuance of notes receivable of $237,503 and an increase in payment for land use right of $143,370, offset by a decrease in the repayment of notes receivable of $1,199,003.

 

Net cash used in investing activities was $355,758 for the nine months ended March 31, 2011, which is primarily attributable to the increase in the issuance of notes receivable of $331,299, offset by a decrease in the repayment of notes receivable of $139,448.

 

Financing Activities

 

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

 

Net cash used by financing activities was $618,780 for the nine months ended March 31, 2012, which is primarily attributable to a decrease in repayments of note payable of $1,931,973 and a decrease in repayments of short-term loans of $2,676,449, offset by an increase in proceeds from notes payable of $1,360,424 and an increase in proceeds from short-term loans of $2,629,217.

 

Net cash used in financing activities was $987,168 for the nine months ended March 31, 2011, which is primarily attributable to an increase in repayments of short-term loans of $2,642,246, offset by a decrease in proceeds from short-term loans of $1,201,021 and a decrease in proceeds from notes payable of $782,934.

 

Working Capital

 

Our working capital was $85,323,123 for the nine months ended March 31, 2012, as compared with $75,447,911 for the year ended June 30, 2011, which is primarily attributable to an increase in notes receivable of $9,193,993 and an increase in inventories of $15,063,919, offset by a decrease in cash and cash equivalents of $334,533, an increase in value added tax payable of $9,680,624 and an increase in income tax payable of $3,023,349.

 

We believe that we will generate sufficient cash during the next twelve months to fund our operations, service our debt and remain in a positive cash position based on anticipated revenues, which we receive primarily in cash, and sources of short-term debt that we expect to be available to us. From time to time, the Company may explore new expansion opportunities and funding sources from which our management may consider seeking external funding and financing. There can be no assurance that we will be successful in renewing loans or obtaining new loans.

 

Contractual Obligations

 

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

 

The following tables summarize our contractual obligations as of March 31, 2012, and the effect these obligations are expected to have on our liquidity and cash flows in future periods:

 

   Payments Due by Period 
     
   Total   Less than 
1 year
   Over 1 year 
Contractual Obligations:            
Bank Indebtedness  $2,645,670   $2,645,670   $- 
Notes payable   1,090,300    937,788    152,572 
Total Contractual Obligations:  $3,735,970   $3,583,458   $152,512 

  

-39-
 

 

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

 

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

 

On August 4, 2009, Hengyuan entered into a guarantee contract to serve as guarantor for bank loans borrowed by Mr. Li Zengshan, a shareholder and officer of the Company, from the Industrial and Commercial Bank of China with a guarantee amount of $250,894. Under this guarantee contract, a land use right and an office building of Hengyuan were pledged as collateral for the bank loans.

 

Off-Balance Sheet Commitments and Arrangements

 

Other than the arrangement described above, as of March 31, 2012, we do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions of foreign currency forward contracts. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or research and development services with us.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

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

 

ITEM 4. CONTROLS AND PROCEDURES

 

(a)           Evaluation of disclosure controls and procedures. At the conclusion of the period ended March 31, 2012 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2012, our disclosure controls and procedures were effective and adequately designed to ensure that the information required to be disclosed by us in the reports we submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and that such information was accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, in a manner that allowed for timely decisions regarding required disclosure.

 

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

 

-40-
 

  

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

 

PART II

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

In the normal course of business, we are named as defendant in lawsuits in which claims are asserted against us. In our opinion, the liabilities, if any, which may ultimately result from such lawsuits, are not expected to have a material adverse effect on our financial position, results of operations or cash flows. As of March 31, 2012, there were no pending or outstanding material proceedings involving the Company or its subsidiaries, or any of their properties.  

 

ITEM 1A. RISK FACTORS

 

Not required for a “smaller reporting company”.

 

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

 

During the quarter ended March 31, 2012, the Company had no unregistered sales of equity securities.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

(a)   Exhibits

 

EXHIBIT

NO.

  DESCRIPTION   LOCATION
         
2.1   Share Exchange Agreement, dated December 28, 2009, by and between the Company, Jolly Promise Limited and Welldone Pacific Limited   Incorporated by reference to Exhibit  2.1 to the Company’s Current Report on Form 8-K as filed with the SEC on December 29, 2009
         
3.1   Articles of Incorporation of the Company   Incorporated by reference to Exhibit 3.1 to the Company’s General Form for Registration of Securities on Form 10 as filed with the SEC on May 15, 2009
         
3.2   Amended and Restated Bylaws of the Company   Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K as filed with the SEC on September 21, 2010

 

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3.3   Memorandum and Articles of Association of Jolly Promise Limited, dated July 2, 2008   Incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K as filed with the SEC on December 29, 2009
         
3.4   Certificate of Incorporation of Jolly Promise Limited   Incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K as filed with the SEC on December 29, 2009
         
10.1   Stock Purchase Agreement between Shaun Carter and the company dated December 28, 2009   Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on December 29, 2009
         
14.1   Code of Business Conduct and Ethics   Incorporated by reference to Exhibit 14.1 to the Company’s Current Report on Form 8-K as filed with the SEC on September 21, 2010
         
 16.1   Letter Regarding Change in Certifying Accountant   Incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K as filed with the SEC on February 9, 2010
         
21   List of Subsidiaries of the Company   Incorporated by reference to Exhibit 21 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on February 14, 2012
         
22   Published Report Regarding Matter Submitted to Vote of Security Holders Regarding Name Change of the Company   Incorporated by reference to the Company’s Current Report on Form 8-K as field with the SEC on April 28, 2010
         
31.1   Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   Provided herewith
         
31.2   Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002   Provided herewith
         
32.1   Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002   Provided herewith

 

32.2   Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act Of 2002   Provided herewith
         
99.1   Audit Committee Charter   Incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K as filed with the SEC on September 21, 2010
         
99.2   Compensation Committee Charter   Incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K as filed with the SEC on September 21, 2010
         
99.3   Corporate Governance and Nominating Committee Charter   Incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K as filed with the SEC on September 21, 2010

 

99.4   Related Person Transaction Policy   Incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K as filed with the SEC on September 21, 2010
         
99.5   Written Disclosure Policy   Incorporated by reference to Exhibit 99.5 to the Company’s Annual Report on Form 10-K as filed with the SEC on September 28, 2010
         
101. INS   XBRL Instance Document   Provided herewith
         
101. CAL   XBRL Taxonomy Extension Calculation Link base Document   Provided herewith
         
101. DEF   XBRL Taxonomy Extension Definition Link base Document   Provided herewith
         
101. LAB   XBRL Taxonomy Label Link base Document   Provided herewith
         
101. PRE   XBRL Extension Presentation Link base Document   Provided herewith
         
101. SCH   XBRL Taxonomy Extension Scheme Document   Provided herewith

 

 

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SIGNATURES

 

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

 

Date: May 15, 2012 By: /s/ Dianjun Liu
    Name: Dianjun Liu
   

Its: President, Chief Executive

Officer and Principal Executive

Officer

     
Date: May 15, 2012 By: /s/ Chenglin Wang
    Name: Chenglin Wang
   

Its: Chief Financial Officer, and Principal

Financial and Accounting Officer

  

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XOTC:WTFSE Quarterly Report 10-Q Filling

XOTC:WTFSE Stock - Get Quarterly Report SEC Filing of XOTC:WTFSE stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XOTC:WTFSE Quarterly Report 10-Q Filing - 3/31/2012
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