10-Q 1 xnyh10q20090930.htm XINYINHAI TECHNOLOGY, LTD. FORM 10-Q SEPTEMBER 30, 2009 xnyh10q20090930.htm


U. S. Securities and Exchange Commission
Washington, D. C. 20549

       FORM 10-Q

[X]
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended September 30, 2009
 
[ ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____

Commission File No. 0-51012

XINYINHAI TECHNOLOGY, LTD.
(Exact Name of Registrant as Specified in its Charter)
 
                        Utah                     
           87-0427336           
(State or Other Jurisdiction of
(I.R.S. Employer I.D. No.)
incorporation or organization)
 

No. 16 Dalian Road, Centralized Park Haping Road, Harbin Development Zone, China 150060
(Address of Principal Executive Offices)
 
86-451-868-11118
Issuer's Telephone Number:

Indicate  by check mark  whether the  Registrant  (1) has filed all reports required to be filed by Sections 13 or 15(d) of the  Securities Exchange Act of 1934  during  the  preceding  12 months  (or for such shorter  period  that the Registrant was required to file such reports),  and (2) has been subject to such filing requirements for the past 90 days.  Yes  X    No ____
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)  Yes___ No ____
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)
 
Large accelerated filer         Accelerated filer         Non-accelerated filer         Small 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  
 
APPLICABLE ONLY TO CORPORATE ISSUERS:  Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date:
November 13, 2009
Common Voting Stock: 19,484,029

 
 

 

Xinyinhai Technology, Ltd.
Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2009 and 2008

Index to Condensed Consolidated Financial Statements



   
Pages
     
Condensed Consolidated Balance Sheets
 
1
     
Condensed Consolidated Statements of Income and Comprehensive Income
 
2
     
Condensed Consolidated Statements of Cash Flows
 
3
     
Notes to Condensed Consolidated Financial Statements
 
4 - 16

 
 

 

Xinyinhai Technology, Ltd.
Condensed Consolidated Balance Sheets
As of September 30, 2009 and December 31, 2008
(Stated in US Dollars)

   
September 30,
   
December 31,
 
   
2009
   
2008
 
   
(Unaudited)
       
ASSETS
           
             
Current Assets
           
Cash and cash equivalents
  $ 4,399,745     $ 495,060  
Trade receivables (Net of allowance for doubtful accounts of $6,038 for 2009 and $6,024 for 2008)
    2,835,510       2,901,909  
Inventories (Note 6)
    1,613,833       1,950,544  
Other receivable, deposits and prepayments (Note 7)
    3,144,504       3,680,640  
Prepaid expenses (Note 8)
    -       87,693  
                 
Total Current Assets
    11,993,592       9,115,846  
                 
Property, plant and equipment, net (Note 9)
    5,237,697       5,103,480  
Land-use-right
    1,048,935       1,069,546  
                 
TOTAL ASSETS
  $ 18,280,224     $ 15,288,872  
                 
LIABILITIES AND EQUITY
               
                 
Current Liabilities
               
Collateralized bank loans (Note 11)
  $ 2,934,000     $ -  
Trade payable
    592,004       899,141  
Customer deposits
    1,301       117,221  
Other payable and accrued liabilities (Note 10)
    60,659       652,170  
Value added tax payable
    173,632       111,718  
Income tax payable
    32,191       37,713  
                 
TOTAL LIABILITIES
    3,793,787       1,817,963  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
STOCKHOLDERS’ EQUITY
               
                 
Common stock (Note 12)
    19,484       19,484  
Additional paid-in capital
    3,294,543       3,294,543  
Retained earnings
    7,003,759       6,184,913  
Statutory reserves
    1,358,139       1,276,013  
Accumulated other comprehensive income
    1,330,423       1,329,779  
                 
TOTAL XINYINHAI TECHNOLOGY, LTD. STOCKHOLDERS’ EQUITY
    13,006,348       12,104,732  
                 
NON-CONTROLLING INTEREST (NOTE 3)
    1,480,089       1,366,177  
                 
TOTAL LIABILITIES AND EQUITY
  $ 18,280,224     $ 15,288,872  
 

 
See the accompanying notes to condensed consolidated financial statements

 
1

 

Xinyinhai Technology, Ltd.
Condensed Consolidated Statements of Income and Comprehensive Income
For the three and nine months ended September 30, 2009 and 2008
(Unaudited)
(Stated in US Dollars)

   
Three months ended
September 30, (Unaudited)
   
Nine months ended
September 30, (Unaudited)
 
   
2009
   
2008
   
2009
   
2008
 
                         
Revenues (Note 3)
    1,921,858       3,143,423       6,430,498       10,666,016  
Cost of revenues
    (1,338,697 )     (2,017,430 )     (4,213,878 )     (6,521,285 )
                                 
Gross profit
    583,161       1,125,993       2,216,620       4,144,731  
                                 
Operating expenses
                               
Selling and distribution expenses
    82,766       79,497       270,729       254,012  
General and administrative expenses
    284,408       299,965       803,196       897,301  
                                 
Total expenses
    367,174       379,462       1,073,925       1,151,313  
                                 
Income from operations
    215,987       746,531       1,142,695       2,993,418  
Other income
    -       10,278       16,411       386,528  
Interest income
    4,410       9,470       10,457       10,894  
                                 
Income before income taxes and non-controlling interest
    220,397       766,279       1,169,563       3,390,840  
Income taxes (Note 4)
    (32,090 )     (361 )     (154,765 )     (303,712 )
                                 
Net income
    188,307       765,918       1,014,798       3,087,128  
Net income attributable to non-controlling interest
    (21,633 )     (94,742 )     (113,826 )     (307,087 )
                                 
Net income attributable to Xinyinhai Technology, Ltd. stockholders
    166,674       671,176       900,972       2,780,041  
                                 
Net income
    188,307       765,918       1,014,798       3,087,128  
                                 
Other comprehensive income
                               
Foreign currency translation adjustments
    17,574       35,798       730       976,820  
                                 
Comprehensive income
    205,881       801,716       1,015,528       4,063,948  
                               
Comprehensive income attributable to non-controlling interest
    (23,403 )     (98,322 )     (113,912 )     (404,769 )
                                 
Comprehensive income attributable to Xinyinhai Technology, Ltd. stockholders
    182,478       703,394       901,616       3,659,179  
                                 
Earnings per share attributable to Xinyinhai Technology, Ltd. stockholders (Note 5) : basic and diluted
  $ 0.01     $ 0.03     $ 0.05     $ 0.14  
                                 
Weighted average number of common stock outstanding
    19,484,029       19,448,159       19,484,029       20,566,363  


See the accompanying notes to condensed consolidated financial statements
 
 
2

 

Xinyinhai Technology, Ltd.
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2009 and 2008
(Stated in US Dollars)
 
   
Nine months ended
September 30, (Unaudited)
 
   
2009
   
2008
 
Cash flows from operating activities
           
Net income attributable to Xinyinhai Technology Ltd. Stockholders
  $ 900,972     $ 2,780,041  
Adjustments to reconcile net income attributable to Xinyinhai Technology Ltd. to net cash provided by/(used in) operating activities:
               
Depreciation and amortization
    450,846       284,557  
Other income
    (4,000 )     (376,250 )
Non-controlling interest
    113,826       307,087  
Loss on disposal of property, plant and equipment
    -       3,749  
Changes in operating assets and liabilities
               
Restricted cash
    -       395,701  
Trade receivables
    66,394       (2,282,748 )
Inventories
    336,711       (616,591 )
Other receivable, deposits and prepayments
    536,137       (304,855 )
Trade payable
    (307,138 )     (25,682 )
Bills payable
    -       (395,701 )
Customers deposits
    (115,920 )     178,485  
Other payable and accrued liabilities
    (587,511 )     (51,678 )
Income tax payable
    (5,521 )     -  
Value added tax payable
    61,913       (64,134 )
                 
Net cash flows provided by/(used in) operating activities
    1,446,709       (168,019 )
                 
Cash flows from investing activities
               
                 
Payments to acquire property, plant and equipment and land use right
    (476,673 )     (958,197 )
Proceeds from disposal of property, plant and equipment
    -       287  
                 
Net cash flows used in investing activities
    (476,673 )     (957,910 )
                 
Cash flows from financing activity
               
                 
Collateralized bank loan
    2,934,000       -  
                 
Net cash flows provided by financing activity
    2,934,000       -  
                 
Effect of foreign currency translation on cash and cash equivalents
    649       121,522  
                 
Net increase/(decrease) in cash and cash equivalents
    3,904,685       (1,004,407 )
                 
Cash and cash equivalents - beginning of period
    495,060       1,308,877  
                 
Cash and cash equivalents - end of period
  $ 4,399,745     $ 304,470  
                 
Supplemental disclosures for cash flow information
               
                 
Interest paid
  $ 35,893     $ -  
Income taxes paid
  $ 157,716     $ 314,681  

 
See the accompanying notes to condensed consolidated financial statements

 
3

 

Xinyinhai Technology, Ltd.
Notes to Condensed Consolidated Financial Statements
For the three months and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated in US Dollars)


1.            Corporation information

 
(a)
Xinyinhai Technology, Ltd. (“Xinyinhai” or the “Company”) was incorporated in Utah on October 18, 1985.  It currently has two subsidiaries, Winner Sea Group Limited (“Winner Sea”) and Harbin Golden Sea Technology Printing Co., Ltd. (“Harbin Golden Sea”).

Winner Sea is a business company organized under the laws of the British Virgin Islands (“BVI”) on January 12, 2006.  It has conducted no business and is a holding company whose only asset is 90% equity interest in Harbin Golden Sea.  Ms. Xie Guihong, a director of the Company, owns the remaining 10% equity interest in Harbin Golden Sea.

Harbin Golden Sea is a company located in Harbin City, Heilongjiang Province, the People’s Republic of China (“PRC”).  Founded in 1998, Harbin Golden Sea has developed into a leading participant in the PRC’s financial note printing industry.  It is one of the companies to which the PRC government has issued the Special Industry Operating Permit and the Government Securities and Documents Duplicating Permit, which are the licenses required in order to be engaged in printing bank vouchers in the PRC.

The Company ended its development stage after the share exchange transaction as detailed in note 1(b) to the financial statements.

 
(b)
On June 29, 2006, the Company executed a share exchange agreement (the “Share Exchange”) with the stockholders of Winner Sea whereby the stockholders of Winner Sea exchanged all their Winner Sea shares for 18,000,000 shares of the Company’s common stock, representing 98.3% of the then outstanding stock of the Company.

The purchase method under reverse takeover accounting has been applied for the Share Exchange.  These consolidated financial statements issued under the name of the legal parent, Xinyinhai, are a continuation of the financial statements of Winner Sea, which include Winner Sea’s majority owned subsidiary Harbin Golden Sea.


2.             Description of business

The Company, through Harbin Golden Sea, is a leading participant in PRC’s financial notes printing industry.  It provides printing services whose quality equals the highest standards worldwide and imports state-of-the-art printing equipment from overseas that is installed on its advanced software systems, such as anti-falsification software.

The Company also earned approximately 15% of its revenue for the current reporting period from its position as a distributor of plasma arc cutting machinery and consumable parts.  The plasma arc cutting systems are designed to provide metal workers with clean cuts for metal work that permits little tolerance for error, and are well-known worldwide.

 
4

 
 
Xinyinhai Technology, Ltd.
Notes to Condensed Consolidated Financial Statements
For the three months and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated in US Dollars)


3.            Summary of significant accounting policies

Basis of presentation and consolidation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) including the instructions to Form 10-Q and Regulation S-X.  Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted from these statements pursuant to such rules and regulation and, accordingly, they do not include all the information and notes necessary for comprehensive consolidated financial statements and should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2008, included in our Annual Report on Form 10-K for the year ended December 31, 2008.

In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for a fair statement of the results for the three months and nine months periods have been made.  Results for the interim period presented are not necessarily indicative of the results that might be expected for the entire fiscal year.  The condensed consolidated financial statements include the accounts of the Company and its subsidiaries.  All significant inter-company accounts and transactions have been eliminated in consolidation.

Use of estimates

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting periods.  These accounts and estimates include, but are not limited to, the valuation of accounts receivable, inventories and the estimation on useful lives of property, plant and equipment.  Actual results could differ from those estimates.

Concentrations of credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, trade receivables, other receivables and deposits.  As of September 30, 2009 and December 31, 2008, substantially all of the Company’s cash and cash equivalents were held by major financial institutions located in the PRC, which management believes are of high credit quality.  With respect to trade receivables, other receivables and deposits, the Company extends credit based on an evaluation of the customer’s financial condition, generally without requiring collateral.  The Company maintains an allowance for doubtful accounts of trade receivables.

 
5

 

Xinyinhai Technology, Ltd.
Notes to Condensed Consolidated Financial Statements
For the three months and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated in US Dollars)


3.            Summary of significant accounting policies (Cont’d)
 
Concentrations of credit risk (cont’d)
 
During the reporting periods, customers representing 10% or more of the Company’s consolidated sales are:

   
Three months ended
September 30,
(unaudited)
   
Nine months ended
September 30,
(unaudited)
 
   
2009
   
2008
   
2009
   
2008
 
                         
Company A
    374,354       316,291       1,427,625       492,765  
Company B
    200,649       55,699       678,262       55,699  
Company C
    138,132       178,209       828,109       615,760  
Company D
    94,683       374,955       463,117       1,374,212  
Company E
    19,753       180,279       243,487       1,214,192  
                                 
      827,571       1,105,433       3,640,600       3,752,628  

Trade receivables

The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts.  An allowance for doubtful accounts is established and recorded based on managements’ assessment of the credit history with the customers and current relationships with them.  Additional specific provision will be made against trade receivables to the extent that they are considered to be doubtful.

Bad debts were written off when identified.  The Company does not accrue interest on trade receivables.

Inventories

Inventories are stated at the lower of cost or market.  Cost is determined on a weighted average basis and includes all expenditures incurred in bringing the goods to the point of sale and putting them in a saleable condition.  In assessing the ultimate realization of inventories, the management makes judgments as to future demand requirements compared to current or committed inventory levels.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation.  Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use.

Depreciation is provided to write off the cost of the assets to the estimated residual value on a straight-line basis over their estimated useful lives as follows:
 
 
6

 
 
Xinyinhai Technology, Ltd.
Notes to Condensed Consolidated Financial Statements
For the three months and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated in US Dollars)
 
 
3.            Summary of significant accounting policies (Cont’d)

Property, plant and equipment (cont’d)

 
Depreciable life
 
Building
20 years
 
Plant and machinery
10 years
 
Furniture, fixtures and equipment 
5 years
 
Motor vehicles
10 years
 

Maintenance or repairs are charged to expense as incurred.  Upon sale or disposition, the applicable amounts of asset cost and accumulated depreciation are removed from the accounts and the net amount less proceeds from disposal is charged or credited to income.

Land-use-right

Land-use-right is stated at cost less accumulated amortization.  Amortization is provided using the straight-line method over the remaining terms of the lease of 38 years.

Non-controlling interest

Non-controlling interest results from the consolidation of 90% owned subsidiary, Harbin Golden Sea, where the Company has control over its operations.

Stock-based compensation

The Company adopted the SFAS No. 123R "Share-Based Payment" (ASC 718) using the modified prospective method.  Under ASC 718, equity instruments issued to service providers for their services are measured at the grant-date fair value and recognized in the statement of income and comprehensive income over the vesting period.

Revenue recognition

The Company derives revenues from the sales of printed products and trading of equipment.  The Company recognizes its revenues net of related business taxes and value added taxes and when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the selling price is fixed or determinable and collectibility is reasonably assured.

 
(a)
The Company recognizes revenue from the sale of printed forms upon delivery to the customers and the transfer of title and risk of loss.  Because the majority of products are customized to meet customer specifications, product returns are not significant.

 
(b)
Revenue from sale of the equipment and associated spare parts is recognized at the time of delivery of products to customers and when the title and ownership are passed to the customers.  Revenue from the resale of equipment and associated spare parts is recognized on a gross basis pursuant to the guidance of Topic 605-45 of EITF 99-19, since the Company is acting as a principal, rather than as another company’s agent.  The Company is a re-distributor of Hypertherm products, including the whole machines and the spare parts and responsible for the after-sale service, which include repair and maintenance of the machines.  The Company also assigns its engineers to provide assistance to its customers if they have trouble setting up the machines or if the machines malfunction.

 
7

 

Xinyinhai Technology, Ltd.
Notes to Condensed Consolidated Financial Statements
For the three months and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated in US Dollars)


3.            Summary of significant accounting policies (Cont’d)

Basic and diluted earnings per share

The Company reports basic earnings per share in accordance with SFAS No. 128 “Earnings Per Share” (ASC 260).  Basic earnings per share is computed using the weighted average number of shares outstanding during the periods presented.  The weighted average number of shares of the Company represents the common stock outstanding during the periods.

Recently issued accounting standards

In October 2009, the FASB issued Accounting Standards Update, 2009-13, Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging Issues Task Force.” This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. The management is in the process of evaluating the impact of Accounting Standards update, 2009-13 will have on the Company’s financial statement upon adoption.

In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (“ASC Update 2009-05”), an update to ASC 820, Fair Value Measurements and Disclosures. This update provides amendments to reduce potential ambiguity in financial reporting when measuring the fair value of liabilities. Among other provisions, this update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the valuation techniques described in ASC Update 2009-05. ASC Update 2009-05 will become effective for the Company’s annual financial statements for the year ended December 31, 2009. The management is in the process of evaluating the impact of ASC Update 2009-05 will have on the Company’s financial statement upon adoption.

FASB Accounting Standards Codification (Accounting Standards Update “ASU” 2009-1). In June 2009, the Financial Accounting Standard Board (“FASB”) approved its Accounting Standards Codification (“Codification”) as the single source of authoritative United States accounting and reporting standards applicable for all non-governmental entities, with the exception of the SEC and its staff. The Codification is effective for interim or annual financial periods ending after September 15, 2009 and impacts our financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification. There have been no changes to the content of our financial statements or disclosures as a result of implementing the Codification.

As a result of the Company’s implementation of the Codification during the quarter ended September 30, 2009, previous references to new accounting standards and literature are no longer applicable. In the current quarter financial statements, the Company will provide reference to both new and old guidance to assist in understanding the impacts of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.

 
8

 

Xinyinhai Technology, Ltd.
Notes to Condensed Consolidated Financial Statements
For the three months and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated in US Dollars)
 
 
3.            Summary of significant accounting policies (Cont’d)

Recently issued accounting standards (Cont'd)

Consolidation of Variable Interest Entities – Amended (To be included in ASC 810 “Consolidation”, previously SFAS 167 “Amendments to FASB Interpretation No. 46(R)”). SFAS 167 amends FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” to require an enterprise to perform an analysis to determine the primary beneficiary of a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity and to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity. SFAS 167 also requires enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. SFAS 167 is effective for the first annual reporting period beginning after November 15, 2009 and will be effective for us as of January 1, 2010. The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

Accounting for Transfers of Financial Assets (To be included in ASC 860 “Transfers and Servicing”, previously SFAS No. 166, “Accounting for Transfers of Financial Assets - an Amendment of FASB Statement No. 140.”). SFAS 166 addresses information a reporting entity provides in its financial statements about the transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. Also, SFAS 166 removes the concept of a qualifying special purpose entity, limits the circumstances in which a transferor derecognizes a portion or component of a financial asset, defines participating interest and enhances the information provided to financial statement users to provide greater transparency. SFAS 166 is effective for the first annual reporting period beginning after November 15, 2009 and will be effective for us as of January 1, 2010. The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

Subsequent Events (Included in ASC 855 “Subsequent Events”, previously SFAS No. 165). SFAS No.165, “Subsequent Events” establishes accounting and disclosure requirements for subsequent events. SFAS 165 details the period after the balance sheet date during which we should evaluate events or transactions that occur for potential recognition or disclosure in the financial statements, the circumstances under which we should recognize events or transactions occurring after the balance sheet date in its financial statements and the required disclosures for such events. We adopted this statement effective June 1, 2009 and have evaluated all subsequent events through the filing date with the SEC.

Interim Disclosures about Fair Value of Financial Instruments (Included in ASC 825 “Financial Instruments”, previously FSP SFAS No. 107-1). This guidance requires that the fair value disclosures required for all financial instruments within the scope of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, be included in interim financial statements. This guidance also requires entities to disclose the method and significant assumptions used to estimate the fair value of financial instruments on an interim and annual basis and to highlight any changes from prior periods. FSP 107-1 was effective for interim periods ending after September 15, 2009. The adoption of FSP 107-1 has no material impact on the Company’s financial statements.
 
 
9

 

Xinyinhai Technology, Ltd.
Notes to Condensed Consolidated Financial Statements
For the three months and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated in US Dollars)
 
 
3.            Summary of significant accounting policies (Cont’d)

Recently issued accounting standards (Cont'd)

Investments - Debt and Equity Securities - Overall - Transition and Open Effective Date Information (Included in ASC 320-10-65, previously FASB Staff Position No. 115-2 and Statement of Financial Accounting Standards No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”). ASC 320-10-65 amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities through increased consistency in the timing of impairment recognition and enhanced disclosures related to the credit and noncredit components of impaired debt securities that are not expected to be sold. In addition, increased disclosures are required for both debt and equity securities regarding expected cash flows, credit losses, and securities with unrealized losses. The adoption of this statement has no material impact on the Company’s financial statements.

Fair Value Measurements and Disclosures (Included in ASC 820, previously FSP No. 157-4, “Determining Whether a Market is Not Active and a Transaction Is Not Distressed”.) FSP No. 157-4 clarifies when markets are illiquid or that market pricing may not actually reflect the “real” value of an asset. If a market is determined to be inactive and market price is reflective of a distressed price then an alternative method of pricing can be used, such as a present value technique to estimate fair value. FSP No. 157-4 identifies factors to be considered when determining whether or not a market is inactive. FSP No. 157-4 would be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009 and shall be applied prospectively. The adoption of this standard has no material effect on the Company's financial statements.

Business Combinations (Included in ASC 805, previously FSP No. 141R-1 “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies”). FSP 141R-1 amends the provisions in FASB Statement 141R for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. FSP 141R-1 eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria in Statement 141R and instead carries forward most of the provisions in SFAS 141 for acquired contingencies. FSP 141R-1 is effective for contingent assets and contingent liabilities acquired in evaluating the impact of SFAS 141(R). The management is in the process of evaluating the impact of adopting this standard on the Company’s financial statements.

Intangibles-Goodwill and Other (Included in ASC 350”, previously FASB staff position (“FSP”) FAS 142-3, Determination of the Useful Life of Intangible Assets). FSP FAS 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB Statement No. 142, “Goodwill and Other Intangible Assets”. This new guidance applies prospectively to intangible assets that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP FAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. Early adoption is prohibited. The adoption of this standard has no material effect on the Company's financial statements.

Business Combinations (Included in ASC 805 “Business Combinations”, previously SFAS No. 141(R)). This ASC guidance revised SFAS No. 141, “Business Combinations” and addresses the accounting and disclosure for identifiable assets acquired, liabilities assumed, and noncontrolling interests in a business combination. The adoption of this standard has no material impact on the Company’s financial statements.

 
10

 

Xinyinhai Technology, Ltd.
Notes to Condensed Consolidated Financial Statements
For the three months and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated in US Dollars)
 
 
3.            Summary of significant accounting policies (Cont’d)

Recently issued accounting standards (Cont'd)

Noncontrolling Interests (Included in ASC 810 “Consolidation”, previously SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements”, an amendment of ARB No. 51). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. We adopted SFAS 160 on January 1, 2009. As a result, we have reclassified financial statement line items within our Condensed Consolidated Balance Sheets and Statements of Income and Comprehensive Income for the prior period to conform to this standard.

 
4.            Income taxes

The Company is subject to the United States of America tax law at a tax rate of 34%.  It had no taxable income for income tax purposes for the three and nine months ended September 30, 2009 and 2008.  The Company has not provided deferred taxes on undistributed earnings of its non-U.S. subsidiaries as of September 30, 2009 and December 31, 2008, as it is the Company’s current policy to reinvest these earnings in non-U.S. operations.

Winner Sea was incorporated in the BVI and, under the current law of the BVI, it is not subject to income taxes.

Harbin Golden Sea is subject to PRC enterprise income tax that is computed according to the relevant laws and regulations in the PRC.  It is registered as a new and high technology enterprise in the Harbin region of the PRC and is entitled to a 50% preferential reduction of the income tax rate.  On May 1, 2006, Harbin Golden Sea became a wholly-owned foreign enterprise under a reorganization plan and the Taxation Bureau of Harbin City approved its income tax exemption.  The new arrangement of exemption began in the first two years after Harbin Golden Sea became profitable, being 2006 and 2007, and a 50% income tax reduction for the following three years, being 2008 through 2010.

On March 16, 2007, the PRC’s legislative body, the National People’s Congress, adopted the unified enterprise income tax ("EIT") Law.  This new tax law replaces the existing separate income tax laws for domestic enterprises and foreign-invested enterprises and became effective on January 1, 2008.  Under the new tax law, a unified income tax rate is set at 25% for both domestic enterprises and foreign-invested enterprises.  However, there will be a transition period for enterprises, whether foreign-invested or domestic, that are currently receiving preferential tax treatments granted by relevant tax authorities.  Enterprises that are subject to an enterprise income tax rate lower than 25% may continue to enjoy the lower rate and will transit into the new tax rate over a five year period beginning on the effective date of the EIT Law.  Enterprises that are currently entitled to exemptions for a fixed term will continue to enjoy such treatment until the exemption term expires.  Preferential tax treatment will continue to be granted to industries and projects that qualify for such preferential treatments under the new tax law.  Accordingly, as approved by the Taxation Bureau of Harbin City, Harbin Golden Sea was still entitled to two years’ exemption from the first profit making calendar year of operations after offset of accumulated taxable losses, followed by a 50% tax reduction for the immediate next three calendar years (“tax holiday”).  The tax holiday of Harbin Golden Sea commenced in the fiscal financial year of 2006.  Accordingly, Harbin Golden Sea was subject to preferential tax rate of 9% for 2008, 10% for 2009 and 11% for 2010 respectively.

 
11

 

Xinyinhai Technology, Ltd.
Notes to Condensed Consolidated Financial Statements
For the three months and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated in US Dollars)


5.             Earnings per share - basic and diluted

The basic and diluted earnings per share is calculated using the net income and the weighted average number of common stock outstanding during the reporting periods.

The basic and diluted earnings per share are the same as the warrants granted to external financial advisors were anti-dilutive.


6.
Inventories
 
September 30,
   
December 31,
 
        2009       2008  
     
(Unaudited)
         
                   
 
Raw materials
  $ 944,489     $ 1,303,481  
 
Work in progress
    87,445       228,524  
 
Finished goods
    581,899       418,539  
                   
        1,613,833     $ 1,950,544  
 
 
12

 

Xinyinhai Technology, Ltd.
Notes to Condensed Consolidated Financial Statements
For the three months and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated in US Dollars)


7.            Other receivable, deposits and prepayments

   
September 30,
   
December 31,
 
   
2009
   
2008
 
   
(Unaudited)
       
             
Deposits
  $ 377,044     $ 439,702  
Retention money
    57,213       46,793  
Advances to staff
    253,537       150,630  
Receivable for disposal of building (Note)
    2,420,550       3,007,350  
Other receivables
    36,160       36,165  
                 
      3,144,504     $ 3,680,640  

Note:

The “receivable for disposal of building” arose from a contract under which the Company sold a building.  The contract provided that the Buyer should pay RMB 5,950,000 on the day the Company signed the contract.  The remaining balance should be settled in two installments:  RMB 10,250,000 by June 30, 2009, and RMB 10,250,000 by December 31, 2009.  At that time, the Company did not foresee any risks associated with future payment as the contract is legally executed. Based on review of the creditworthiness of the Buyer, management was confident that the Buyer would meet the payment terms.  Hence no allowance was suggested at December 31, 2008.

By September 30 2009, the Buyer had paid the Company RMB 4,000,000 of the RMB 10,250,000 due on that date. The remaining RMB6,250,000 is outstanding, because the Buyer increased its investment in 2009 for their business development, which resulted in tightened cash flow.  On June 30, 2009 the Company made a supplemental agreement with the Buyer, in which the Buyer has agreed to settle the entire balance before December 31, 2009.  If it fails to meet the revised payment terms, it is mandatory that the Buyer pay the Company at an interest rate which is 20% higher than the general bank interest rate during the extended period.

The Company has not reserved against this receivable because the Company believes that it is unlikely the Buyer would fail to meet the payment terms, due to the penalties involved.  By the end of 2009, if the Buyer does not meet the revised payment terms, the Company will reconsider the necessity for an allowance.


8.
Prepaid expenses
 
September 30,
   
December 31,
 
        2009       2008  
     
(Unaudited)
         
                   
 
Prepaid consultancy fees
  $ 218,000     $ 673,000  
 
Amortization
    (218,000 )     (261,557 )
                   
        -       411,443  
 
Termination of consulting agreements
    -       (323,750 )
                   
        -     $ 87,693  
 
 
13

 

Xinyinhai Technology, Ltd.
Notes to Condensed Consolidated Financial Statements
For the three months and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated in US Dollars)


9.
Property, plant and equipment, net
 
September 30,
   
December 31,
 
        2009       2008  
     
(Unaudited)
         
                   
 
Building
  $ 3,887,354     $ 3,499,037  
 
Plant and machinery
    2,777,986       2,693,877  
 
Motor vehicles
    390,842       389,602  
 
Furniture, fixtures and equipment
    92,613       89,248  
                   
        7,148,795       6,671,764  
 
Accumulated depreciation
    (1,911,098 )     (1,568,284 )
                   
 
Property, plant and equipment, net
    5,237,697     $ 5,103,480  


10.
Other payables and accrued liabilities
 
September 30,
   
December 31,
 
        2009       2008  
     
(Unaudited)
         
                   
 
Other payables
  $ 32,799     $ 553,899  
 
Accrued statutory staff welfare and salaries
    17,700       47,111  
 
Accrued liabilities
    10,160       51,160  
                   
      $ 60,659     $ 652,170  


11.
Collateralized bank loans
 
September 30,
   
December 31,
 
        2009       2008  
     
(Unaudited)
         
                   
 
Bank loans repayable within 1 year
  $ 2,934,000       -  

The above bank loans are denominated in RMB and carry an average interest rate at 5.31% per annum.  The bank loan as of September 30, 2009 was collateralized by land use rights and buildings with carrying values of $1,048,935 and $2,880,897 respectively.


12.          Stockholders’ equity

Common stock

     
No. of shares
   
Amount
 
 
Authorized:
           
               
 
Common stock at USD0.001 par value
    40,000,000     $ 40,000  
                   
 
Issued and outstanding:
               
                   
 
As of September 30, 2009 and December 31, 2008
    19,484,029     $ 19,484  
 
 
14

 

Xinyinhai Technology, Ltd.
Notes to Condensed Consolidated Financial Statements
For the three months and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated in US Dollars)


13.           Defined contribution plan

The Company has a defined contribution plan for all its qualified employees in the PRC.  The Company and its employees are each required to make contributions to the plan at the rates specified in the plan.  The only obligation of the Company with respect to retirement scheme is to make the required contributions under the plan.  No forfeited contribution is available to reduce the contribution payable in future years.  The defined contribution plan contributions were charged to the statement of income and comprehensive income.  The Company contributed $89,338 and $46,073 for the nine months ended September 30, 2009 and 2008 respectively.


14.           Segment information

The Company currently operates in two reportable segments, Sales of printed products and trading of equipment.  The accounting policies of the segments are the same as described in the summary of significant accounting policies.  The Company evaluates segment performance based on income from operations.  As a result, the components of operating income for one segment may not be comparable to another segment.  The following is a summary of the Company’s segment information :

   
Printing Products
   
Trading of Equipment
   
Total
 
   
Nine months ended
Septermber 30, (Unaudited)
   
Nine months ended
Septermber 30, (Unaudited)
   
Nine months ended
Septermber 30, (Unaudited)
 
   
2009
   
2008
   
2009
   
2008
   
2009
   
2008
 
                                     
Revenues
  $ 5,447,406     $ 7,350,434     $ 983,092     $ 3,315,582     $ 6,430,498     $ 10,666,016  
Segment profit
  $ 1,188,628     $ 2,960,862     $ 104,398     $ 340,894     $ 1,293,026     $ 3,301,756  

   
Three months ended
September 30, (Unaudited)
   
Three months ended
 September 30, (Unaudited)
   
Three months ended
 September 30, (Unaudited)
 
   
2009
   
2008
   
2009
   
2008
   
2009
   
2008
 
                                     
Revenues
  $ 1,697,436     $ 2,285,531     $ 224,422     $ 857,892     $ 1,921,858     $ 3,143,423  
Segment profit
  $ 237,705     $ 786,487     $ 29,221     $ 2,263     $ 266,926     $ 788,750  

   
September 30,
   
December 31,
   
September 30,
   
December 31,
   
September 30,
   
December 31,
 
   
2009
   
2008
   
2009
   
2008
   
2009
   
2008
 
   
(Unaudited)
         
(Unaudited)
         
(Unaudited)
       
                                     
Segment assets
  $ 14,050,394     $ 10,895,494     $ 1,303,049     $ 558,250     $ 15,353,443     $ 11,453,744  
 
 
15

 

Xinyinhai Technology, Ltd.
Notes to Condensed Consolidated Financial Statements
For the three months and nine months ended September 30, 2009 and 2008 (Unaudited)
(Stated in US Dollars)


14.           Segment information (Cont’d)

A reconciliation is provided for unallocated amounts relating to corporate operations which is not included in the segment information.

   
Three months ended
September 30,
(Unaudited)
   
Nine months ended
September 30,
(Unaudited)
 
   
2009
   
2008
   
2009
   
2008
 
                         
Total consolidated revenue
  $ 1,921,858     $ 3,143,423     $ 6,430,498     $ 10,666,016  
                                 
Total income for reportable segments
  $ 266,926     $ 788,750     $ 1,293,026     $ 3,301,756  
Unallocated amounts relating to operations:
                               
Other income
    4,000       -       4,000       376,250  
Amortization of prepaid expenses and professional fee
    (50,529 )     (22,471 )     (127,463 )     (287,166 )
                                 
Income before income taxes and Non-controlling interest
  $ 220,397     $ 766,279     $ 1,169,563     $ 3,390,840  

   
September 30,
   
December 31,
 
   
2009
   
2008
 
   
(Unaudited)
       
Assets
           
             
Total assets for reportable segments
  $ 15,353,443     $ 11,453,744  
Unallocated amounts relating to operations:
               
Prepaid expenses
    -       87,693  
Building
    2,887,503       3,708,052  
Other receivables
    36,160       36,160  
Cash and cash equivalents
    3,118       3,223  
                 
Total
  $ 18,280,224     $ 15,288,872  

All of the Company’s long-lived assets and customers are located in the PRC.  Accordingly, no geographic information is presented.


15.           Subsequent Events

Effective this quarter, the Company implemented SFAS No. 165.  This standard establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  The adoption of SFAS 165 did not impact our financial position or results of operations.  The Company evaluated all events or transactions that occurred after September 30, 2009 up through November 14, 2009, the date these financial statements were issued.  During this period the Company did not have any material recognizable subsequent events.

 
16

 

ITEM 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations
 
The current global recession has reduced demand for capital goods in China.  As of the first nine months of 2009, this situation had a negative impact on both of our business segments.  Overall, our revenue during the nine months ended September 30, 2009 decreased by 40% to $6,430,498 from $10,666,016 achieved during the nine months ended September 30, 2008.  Our revenue during the three months ended September 30, 2009 decreased by 39% to $1,921,858 from $3,143,423 achieved during the three months ended September 30, 2008.  The decrease was most dramatic in our equipment distribution business, where revenues declined by 70% to $983,092 during the nine months ended September 30, 2009 from $3,315,582 during the same period of 2008, and from $857,892 during the third quarter of 2008 to $224,422 during the third quarter of 2009.  The decline in equipment distribution reflected delays in the construction of new manufacturing facilities in China, as potential customers wait to see whether demand for their products is revived.  The decline reversed a surge in equipment sales that we had experienced in 2008, and returned this business segment to a 15% contribution to our overall revenue during the nine months ended September 30, 2009, a level similar to our experience in 2007 and 2006.  The future of this business segment will depend, in part, on the success of the recent economic stimulus initiated by the Government of China.
 
Revenue from our printing business fell by 26% to $5,447,406 during the nine months ended September 30, 2009, compared to $7,350,434 during the same period of 2008.  During the three months ended September 30, 2009, the revenue from our printing business decreased by 26% to $1,697,436, compared to $2,285,531 during the same period of 2008.  The decline occurred, in part, due to the weakening of the Chinese banking industry, as many of our customers are conserving cash pending stabilization of the international credit markets.  The decline also occurred because we moved our entire production operation to a larger facility at the end of 2008, which interfered with our printing business.  Today, however, our new facility is fully operational, and we expect the traditional growth of our printing business to be renewed.
 
Over the longer term, the continued revenue growth in our printing services business will require further capital investment.  As China’s banking industry rapidly modernizes, our customers demand additional product offerings similar to those available to the banking industry in Europe and the U.S.  Our ability to meet that demand will determine the long term growth of our business.  Immediately, the development of these new products will require substantial capital investment.  For that purpose, we secured a $2.9 million collateralized loan during the third quarter of 2009.
 
The 34% gross margin realized by our subsidiary, Harbin Golden Sea, on sales during the nine months ended September 30, 2009 (30% during the three month period) was lower than the 39% gross margin realized during the nine months ended September 30, 2008 (36% during the three month period).  The primary reason for the fall-off was the sharp decline in profits from equipment sales during the nine months ended September 30, 2009.  The decline in demand for our cutting machinery forced us to price our sales aggressively, which reduced margins on equipment sales in the recent quarter.  At the same time, the disruption in the Chinese banking industry forced us to reduce margins in our printing segment as well.  Our expectation for the future is that our gross margin from printing services will average approximately 45%, albeit within a range of 35% to 50%, depending on the components of the business.  Since we intend to devote the funds that we recently borrowed to expand our printing capacity, we expect the printing portion of its business to grow faster than the equipment sales business.  If that occurs, overall gross margin should increase towards the higher margins that printing has historically produced.
 
 
17

 
 
During the nine months ended September 30, 2009, we reduced our total expenses by 6.7% to $1,073,925, compared to $1,151,313 during the same period of 2008. This reduction was achieved despite a 58% increase in depreciation and amortization and $16,717 increase in our selling and distribution expenses during the first nine months of 2009.  These increases were counterbalanced by the favorable results of our continuing efforts to achieve efficiencies in our operations, leading to a decrease of $94,105 in our general and administration expenses for the first nine months of 2009.  Likewise, our total expenses during the three months ended September 30, 2009 was reduced by 3.2% to $367,174, compared to $379,462 during the same period of 2008. When demand for our products returns to prior levels, we expect that the ratio of our selling expense to revenues will return to the lower levels that we consistently achieved in prior periods.
 
Commencing in 2008, we became subject to preferential Chinese income tax rates of 9% for 2008, 10% for 2009 and 11% for 2010, respectively.  As a result of this government allowance, we were taxed at a 9% rate in the first nine months of 2008, causing an expense of $303,712 and at a 10% rate in the first nine months of 2009, causing an expense of $154,765. The reduction in our tax liability was attributed to our decreased income during the nine months ended September 30, 2009, compared to the same period of 2008.
 
The operations of our subsidiary, Harbin Golden Sea, earned a net income of $1,014,798 during the first nine months of 2009 and $188,307 during the third quarter of 2009.  However, because we own only 90% of Harbin Golden Sea, we deducted a “noncontrolling interest” of $113,826 and $21,633 respectively during the nine and three months ended September 30, 2009 before recognizing net income on our Statements of Income and Comprehensive Income.  After that deduction and taking into account the income and expenses incurred by the parent corporation, our net income attributable to the shareholders of Xinyinhai Technology for the first nine months and third quarter of 2009 was $900,972 and $166,674, respectively, representing $0.05 and $0.01 per share.
 
Our business operates primarily in Chinese RMB, but we report our results in our SEC filings in U.S. Dollars.  The conversion of our accounts from RMB to Dollars results in translation adjustments, which are reported as a middle step between net income and comprehensive income.  The net income is added to the retained earnings on our balance sheet; while the translation adjustment is added to a line item on our balance sheet labeled “accumulated other comprehensive income,” since it is more reflective of changes in the relative values of U.S. and Chinese currencies than of the success of our business.  During the nine and three months ended September 30, 2009, the effect of converting our financial results to Dollars was to increase our comprehensive income by $730 and $17,574.

 
18

 

Liquidity and Capital Resources
 
Since our subsidiary, Harbin Golden Sea, was organized in 1998, the growth of its operations has been funded by contributions to capital by our Chairman, Mrs. Tian.  With the $2.4 million that she invested, Harbin Golden Sea built its facilities and funded its operations, resulting in profitable operations for the past several years.  As a result, at September 30, 2009, we had working capital totaling $8,199,805 (an increase of $901,922 since the end of 2008) and no long-term liabilities.
 
However, Harbin Golden Sea’s business plan calls for significant investment in the growth of Harbin Golden Sea during the next twelve months.  We plan to purchase new equipment for our new production facility.  We also plan to invest in the development of additional product lines.  To accomplish those goals, during the third quarter of 2009, we obtained a $2.9 million bank loan collateralized by our real property.  The loan bears interest at 5.31% per annum and is due in the third quarter of 2010.  We will utilize the borrowed funds to implement the capital improvements necessary for our growth.
 
During the third quarter of 2009 our operations produced $1,114,639 in net cash, representing 77% of our net cash from operations for the nine months ended September 30, 2009.  The improvement in cash flow in the third quarter was primarily due to the fact that we reduced our trade receivables in the quarter by $642,692.  In 2008 and the first nine months of 2009 our trade receivables have increased disproportionately to our sales due to the ongoing international financial crisis.  Our customers are primarily Chinese banks, and the restriction of international credit lines has adversely affected their liquidity.  To assist them in meeting their cash obligations, we extended the credit terms afforded to the majority of our customers.  This led to the disproportionate increase in our trade receivables.  In the third quarter of 2009, there has increased availability of credit within the international banking system, and our customers have been better able to meet their payment obligations.  We anticipate, therefore, that our trade receivables will increase or decrease in future periods in proportion to the increases or decreases in our sale revenue.
 
With the proceeds of our new bank loan and the satisfaction of our receivables, we held $4.4 million in cash and equivalents at September 30, 2009.  We will have no debt payment obligations until the bank line comes due next year.  And, in accordance with customary banking practice in China, we expect that the bank loan will be extended when it reaches maturity, provided that our financial results are satisfactory to the bank.  For that reason, we expect our liquidity will be sufficient in the next year to fund our ongoing operations as well as our near-term growth.
 
 Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.
 
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

 
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ITEM 4.                 CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.  Tian Ling, our Chief Executive Officer, and Du Song, our Chief Financial Officer, carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2009.  Pursuant to Rule13a-15(e) promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, “disclosure controls and procedures” means controls and other procedures that are designed to insure that information required to be disclosed by the Company in the reports that it files with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time limits specified in the Commission’s rules.  “Disclosure controls and procedures” include, without limitation, controls and procedures designed to insure that information the Company is required to disclose in the reports it files with the Commission is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.  Based on his evaluation, Mrs. Tian and Ms. Du concluded that the Company’s system of disclosure controls and procedures was effective as of September 30, 2009 for the purposes described in this paragraph.

Changes in Internal Controls.  There was no change in internal controls over financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act or 1934) identified in connection with the evaluation described in the preceding paragraph that occurred during the Company’s third fiscal quarter that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

 PART II   -   OTHER INFORMATION

Item 1A          Risk Factors

There have been no material changes from the risk factors disclosed in response to Item 1A to Part I of our Annual Report on Form 10-K for the year ended December 31, 2008.

Item 6.            Exhibits
 
 
31.1
Rule 13a-14(a) Certification – Chief Executive Officer
 
31.2
Rule 13a-14(a) Certification – Chief Financial Officer
 
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Rule 13a-14(b) Certification


SIGNATURES

Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the Registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the undersigned thereunto duly authorized.

 
XINYINHAI TECHNOLOGY, LTD.
   
Date: November 16, 2009
By: /s/ Tian Ling
 
  Tian Ling, Chief Executive Officer
   
 
By: /s/ Du Song
 
  Du Song, Chief Financial Officer
 
 

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