Xinde Technology Co

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.

(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.

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.

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.

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.