Healthtech Solutions, Inc./UT - Quarter Report: 2008 June (Form 10-Q)

xinyinhai10q063008.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 June 30, 2008

[ ]	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.

(Name of Small Business Issuer in its Charter)

Utah	87-0427336
(State or Other Jurisdiction of incorporation or organization)	(I.R.S. Employer I.D. No.)

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 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:

August 12, 2008

Common Voting Stock: 19,484,029

Xinyinhai Technology, Ltd.

Condensed Consolidated Balance Sheet

As of June 30, 2008 and December 31, 2007

(Stated in US Dollars)

	June 30,		December 31,
	2008		2007
	(Unaudited)		(Audited)
ASSETS
Current assets
Cash and cash equivalents	$	126,785	$	1,308,877
Restricted cash (Note 6)		-		363,492
Trade receivable (Net of allowance for doubtful accounts of $7,423 for 2008 and $6,682 for 2007)		3,960,991		1,329,732
Inventories (Note 7)		2,198,926		1,149,271
Other receivable, deposits and prepayments		545,510		166,430
Prepaid expenses (Note 8)		61,508		412,737

Total current assets		6,893,720		4,730,539
Property, plant and equipment, net (Note 9)		7,198,755		5,349,795
Land use right		1,005,862		70,710
Deposits for acquisition of property and equipment		-		1,843,800

TOTAL ASSETS	$	15,098,337	$	11,994,844

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES
Current liabilities
Trade payable	$	1,353,719	$	777,806
Bills payable (Note 6)		-		363,492
Customer deposits		252,834		286,935
Other payable and accrued liabilities (Note 10)		997,264		920,448
Income tax payable		312,034		-
Value added tax payable		6,189		137,334

Total current liabilities		2,922,040		2,486,015

TOTAL LIABILITIES		2,922,040		2,486,015

COMMITMENTS AND CONTINGENCIES

MINORITY INTEREST (NOTE 3)		1,237,220		919,640

STOCKHOLDERS’ EQUITY
Common stock		19,184		24,417
Additional paid-in capital		3,104,843		3,799,610
Retained earnings		5,249,187		3,504,343
Statutory reserves		1,282,657		918,636
Accumulated other comprehensive income		1,283,206		342,183

TOTAL STOCKHOLDERS’ EQUITY		10,939,077		8,589,189

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	15,098,337	$	11,994,844

See the accompanying notes to condensed consolidated financial statements

Xinyinhai Technology, Ltd.

Condensed Consolidated Statements of Income and Comprehensive Income

For the three and six months ended June 30, 2008 and 2007

(Stated in US Dollars)

	Three months ended June 30, (Unaudited)						Six months ended June 30, (Unaudited)
	2008			2007			2008			2007

Revenues (Note 3)	$	4,142,698		$	2,878,962		$	7,522,593		$	5,019,079
Cost of revenues		(2,487,518	)		(1,624,896	)		(4,503,855	)		(2,874,944	)

Gross profit		1,655,180			1,254,066			3,018,738			2,144,135

Operating expenses
Selling and distribution expenses		107,288			130,408			174,515			226,813
General and administrative expenses		315,594			199,375			597,336			796,488

Total expenses		422,882			329,783			771,851			1,023,301

Income from operations		1,232,298			924,283			2,246,887			1,120,834
Other income (Note 8)		376,250			-			376,250			-
Interest income		294			4,280			1,424			9,298


Income before income taxes and minority interest		1,608,842			928,563			2,624,561			1,130,132
Income taxes (Note 4)		(167,938	)		-			(303,351	)		-

Income before minority interest		1,440,904			928,563			2,321,210			1,130,132
Minority interest		(117,556	)		(113,745	)		(212,345	)		(168,853	)

Net income	$	1,323,348		$	814,818		$	2,108,865		$	961,279

Other comprehensive income
Foreign currency translation adjustments		229,700			89,399			941,023			130,937

Comprehensive income	$	1,553,048		$	904,217		$	3,049,888		$	1,092,216

Earnings per share - basic and diluted (Note 5)	$	0.07		$	0.03		$	0.10		$	0.04

Weighted average number of common stock outstanding		19,359,853			24,317,899			21,131,609			24,317,899

See the accompanying notes to condensed consolidated financial statements

Xinyinhai Technology, Ltd.

Condensed Consolidated Statements of Cash Flows

For the three and six months ended June 30, 2008 and 2007

(Stated in US Dollars)

	Six months ended June 30, (Unaudited)
	2008			2007
Cash flows from operating activities
Net income	$	2,108,865		$	961,279
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		160,959			676,111
Other income		(376,250	)		-
Minority interest		212,345			168,853
Changes in operating assets and liabilities
Restricted cash		391,478			-
Trade receivable		(2,418,655	)		(564,361	)
Inventories		(899,980	)		(180,954	)
Other receivable, deposits and prepayments		1,634,674			(550,466	)
Trade payable		478,357			(135,583	)
Bills payable		(391,478	)		-
Customer deposits		(63,229	)		(191,647	)
Other payable and accrued liabilities		(24,638	)		(40,008	)
Income tax payable		303,351			-
Value added tax payable		(141,891	)		(109,252	)

Net cash flows provided by operating activities		973,908			33,972

Cash flows from investing activities
Payments to acquire property, plant and equipment, and land use right		(2,271,937	)		(41,076	)

Net cash flows used in investing activities		(2,271,937	)		(41,076	)

Effect of foreign currency translation on cash and cash equivalents		115,937			39,793

Net (decrease)/increase in cash and cash equivalents		(1,182,092	)		32,689

Cash and cash equivalents - beginning of period		1,308,877			1,553,139

Cash and cash equivalents - end of period	$	126,785		$	1,585,828

Supplemental disclosures for cash flow information
Interest paid	$	-		$	-
Income taxes paid	$	-		$	-

See the accompanying notes to condensed consolidated financial statements

Xinyinhai Technology, Ltd.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2008 and 2007 (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 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 earns approximately 33% 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.

The Company acquired an office building in 2007 that was planned to be used as a tourist destination, to take advantage of the rapid growth of the tourism industry in Harbin. The Company is currently considering selling it.

Xinyinhai Technology, Ltd.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2008 and 2007 (Unaudited)

(Stated in US Dollars)

3. Summary of significant accounting policies

Basis of presentation and consolidation

The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America.

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 and six month 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. These condensed financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Form 10KSB as filed with the Securities and Exchange Commission on April 14, 2008.

The 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.

Trade receivable

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.

The Company’s management determined that no further provision for uncollectible accounts was required for the three and six months ended June 30, 2008.

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.

Xinyinhai Technology, Ltd.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2008 and 2007 (Unaudited)

(Stated in US Dollars)

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

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:

	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 40 years.

Minority interests

Minority interests result 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" using the modified prospective method. Under SFAS 123R, 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 re-sale of purchased third parties 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.

Xinyinhai Technology, Ltd.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2008 and 2007 (Unaudited)

(Stated in US Dollars)

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

Revenue recognition (cont’d)

(b)

Re-sale of purchased third parties equipment, plasma arc cutting machines, does not require significant modification or customization. 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.

Basic and diluted earnings per share

The Company reports basic earnings per share in accordance with SFAS No. 128, “Earnings Per Share”. 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 May 2008, the FASB issued SFAS No. 162 “The Hierarchy of Generally Accepted Accounting Principles”. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). The guidance will become effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The Company is currently evaluating the impact of adopting SFAS 162 on its financial statements.

Xinyinhai Technology, Ltd.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2008 and 2007 (Unaudited)

(Stated in US Dollars)

4. Income taxes

The Company is subject to the United States of America tax law at tax rate of 34%. It has no taxable income for income tax purposes for the three and six months ended June 30, 2008 and 2007. The Company has not provided deferred taxes on undistributed earnings of its non-U.S. subsidiaries as of June 30, 2008 and December 31, 2007, as it is the Company’s current policy to reinvest these earnings in non-U.S. operations.

Winner Sea is not subject to income tax.

Income taxes are calculated at 12.5% on the estimated assessable profits of Harbin Golden Sea. The subsidiary enjoys a 50% tax reduction that was approved by the Taxation Bureau of Harbin City.

On January 1, 2007, the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). Pursuant to FIN 48, the Company identified and evaluated any potential uncertain tax positions. The Company has concluded that there are no uncertain tax positions requiring recognition in the financial statements.

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. Restricted cash and bills payable

When the Company intends or is requested to settle its suppliers by issuance of bills, it is required to place deposits with banks equal to 100% of the bills amount at the time of issuance. These deposits will be used to settle the bills at maturity.

The bills payable outstanding as of December 31, 2007 had been settled during the current reporting period.

7. Inventories

	June 30,	December 31,
	2008	2007
	(Unaudited)	(Audited)

Raw materials	$1,565,103	$781,582
Work in progress	174,818	216,170
Finished goods	459,005	151,519

	$2,198,926	$1,149,271

Xinyinhai Technology, Ltd.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2008 and 2007 (Unaudited)

(Stated in US Dollars)

8. Prepaid expenses

	June 30,			December 31,
	2008			2007
	(Unaudited)			(Audited)

Prepaid consultancy fees	$	149,500		$	2,256,500
Accumulated amortization		(87,992	)		(854,138	)

		61,508			1,402,362
Termination of consulting agreements		-			(989,625	)

	$	61,508		$	412,737

(a)

The Company and certain consultants agreed to terminate the consulting agreements whereby the consultants would return an aggregate of 3,233,870 shares of the Company’s common stock previously granted to them to the Company. These shares of common stock had been returned to the Company for cancellation in February 2008. The cancellation was reflected in the financial statements for the year ended December 31, 2007 as the termination was in negotiation and concluded before December 31, 2007.

(b)

The Company and certain consultants agreed to cancel the consulting agreements whereby the consultants would return an aggregate of 2,000,000 shares of the Company’s common stock previously granted to them to the Company. These shares of common stock had been returned to the Company for cancellation in April 2008. Since the services related to certain of these common stocks were performed and recognized as expenses in previous periods, the Company recognized an income of $376,250 during the current period upon return of these common stock from the consultants.

9. Property, plant and equipment, net

	June 30,			December 31,
	2008			2007
	(Unaudited)			(Audited)

Buildings	$	5,985,508		$	4,183,196
Plant and machinery		2,136,713			1,900,902
Motor vehicles		499,050			450,479
Furniture, fixtures and equipment		92,298			59,546

		8,713,569			6,594,123
Accumulated depreciation		(1,514,814	)		(1,244,328	)

Property, plant and equipment, net	$	7,198,755		$	5,349,795

As of June 30, 2008, included in buildings is the office building of $3,700,390 acquired in 2007 that was planned to be used as a tourist destination, to take advantage of the rapid growth of the tourism industry in Harbin. The Company is currently considering selling the property.

Xinyinhai Technology, Ltd.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2008 and 2007 (Unaudited)

(Stated in US Dollars)

10. Other payables and accrued liabilities

	June 30,		December 31,
	2008		2007
	(Unaudited)		(Unaudited)

Payable for acquisition of building and land use right	$	868,105	$	783,615
Other payables		2,160		42,357
Accrued liabilities, statutory staff welfare and salaries		126,999		94,476

	$	997,264	$	920,448

11. 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 $4,279 and $4,842 for the six months ended June 30, 2008 and 2007 respectively.

12. Segment information

The Company currently operates in two reportable segments, Sales of printed products and Re-sale of purchased 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				Equipment Trading				Total
	Six months ended June 30, (Unaudited)				Six months ended June 30, (Unaudited)				Six months ended June 30, (Unaudited)
	2008		2007		2008		2007		2008		2007

Revenues	$	5,064,902	$	3,929,608	$	2,457,691	$	1,089,471	$	7,522,593	$	5,019,079
Segment profit	$	2,409,333	$	1,593,755	$	452,642	$	94,778	$	2,861,975	$	1,688,533

	Three months ended June 30, (Unaudited)				Three months ended June 30, (Unaudited)				Three months ended June 30, (Unaudited)
	2008		2007		2008		2007		2008		2007

Revenues	$	2,664,339	$	2,177,191	$	1,478,359	$	701,771	$	4,142,698	$	2,878,962
Segment profit	$	1,329,065	$	999,511	$	396,158	$	137,944	$	1,725,223	$	1,137,455

	June 30,		December 31,		June 30,		December 31,		June 30,		December 31,
	2008		2007		2008		2007		2008		2007
	(Unaudited)		(Audited)		(Unaudited)		(Audited)		(Unaudited)		(Audited)

Segment assets	$	10,195,148	$	7,761,404	$	1,021,760	$	301,484	$	11,216,908	$	8,062,888

Xinyinhai Technology, Ltd.

Notes to Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2008 and 2007 (Unaudited)

(Stated in US Dollars)

12. Segment information (Cont’d)

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

	Three months ended June 30,						Six months ended June 30,
	(Unaudited)						(Unaudited)
	2008			2007			2008			2007

Total consolidated revenue	$	4,142,698		$	2,878,962		$	7,522,593		$	5,019,079

Total income for reportable segments	$	1,725,223		$	1,137,455		$	2,861,975		$	1,688,533

Unallocated amounts relating
to operations:
Amortization of prepaid expenses
and professional fee		(116,381	)		(208,892	)		(237,414	)		(558,401	)

Income before income taxes
and minority interest	$	1,608,842		$	928,563		$	2,624,561		$	1,130,132

	June 30,		December 31,
	2008		2007
Assets	(Unaudited)		(Audited)

Total assets for reportable segments	$	11,216,908	$	8,062,888
Unallocated amounts relating to operations:
Prepaid expenses		61,508		412,737
Building and land use right		3,780,720		3,483,465
Other receivable		35,963		32,462
Cash and cash equivalents		3,238		3,292

Total	$	15,098,337	$	11,994,844

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

ITEM 2.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Our revenue in the first six months of 2008 increased by 50% over the revenue realized in the first six months of 2007. The increase was attributable to both our printing business (29% increase) and our equipment distribution business (126% increase). The increase in printing revenue resulted from our development of new customers and from our investment in added capacity during 2007, which enabled us to market our services more aggressively.

During the three months ended June 30, 2008, revenue from our printing business increased by 22%, from $2,177,191 to $2,664,339. However, the primary contributor to the overall 44% quarter-to-quarter increase was our equipment distribution business, whose revenues increased by 111%, from $701,771 to $1,478,359. The increase in distribution revenue was primarily the result of our establishing additional selling agents throughout China, which has opened a much larger market for the plasma arc cutting machines that we sell. For the recent quarter, equipment distribution contributed 36% of our revenue. For the six months ended June 30, 2008, plasma arc cutting equipment distribution contributed 33% of our revenue.

Continued revenue growth in our printing services business will require further capital investment. During the first quarter of the current year we completed the purchase of a 10,284m2 facility, where we are currently developing expanded production facilities in order to meet the production requirements of our growing sales. In addition, 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 are currently exploring financing possibilities, but have not yet received a commitment for the funds.

The 40% gross margin realized by our subsidiary, Harbin Golden Sea on sales in the first six months of 2008 and in the three months ended June 30, 2008, was lower than the 43% gross margin realized in the first six months of 2007 (44% for the three months ended June 30, 2007). The reason for the fall-off was the sharp increase in revenue from equipment sales in 2008, since our gross margin on equipment sales is far lower than our gross margin on printing. Our expectation for the future is that our gross margin from printing services will average approximately 40%, albeit within a range of 33% to 50%, depending on the components of the business. If we obtain the funding necessary 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.

Operating expenses as a percentage of revenue decreased from 20% in the first six months of 2007 (11% in the second quarter) to 10% in the first six months of 2008 and in the quarter ended June 30, 2008. The primary reason for the decrease was the issuance of shares to consultants in the 4th quarter of 2006. We utilized our equity in this manner in order to acquire the services of certain leaders in the printing industry. However the issuance added a prepaid asset of $2,219,000 to our balance sheet, which we were required to amortize as expense over the duration of the consulting agreements. This was the primary reason that we incurred depreciation and amortization charges of $676,111 in the first six months of 2007. Our depreciation and amortization charge for the first six months of 2008, however, was only $160,959, as several of the consulting contracts expired in 2007 and, as to the remainder of the contracts, the Company and the consultants reached agreement at the end of 2007 to cancel future services.

Our efforts to improve the efficiency of our marketing operations continued to yield benefits. During the first six months of 2008, despite the 50% increase in revenue, our selling expenses ($174,515 – 2.3% of revenue) decreased by 23% from the selling expenses recorded in the first six months of 2007 ($226,813 – 4.5% of revenue). The disparity between our fixed costs and our revenue reflected our ability to increase our production without a proportionate increase in our administrative overhead. Similarly we expect that if we obtain the funds needed to increase our printing production capacity, the resulting increase in our revenue will not require a corresponding increase in administrative expense, with the exception that new investment in equipment will cause an increase in depreciation expense.

In 2006 our operating subsidiary qualified for a two year exemption from Chinese income taxes. Commencing in 2008, we will be eligible for three years of taxation at 50% of the 25% statutory rate. As a result of this government allowance, we incurred no income tax in the first six months of 2007, but were taxed at a 12.5% rate in the first six months of 2008, causing an expense of $303,351. The tax burden for the quarter ended June 30, 2008 was $167,938.

The operations of our subsidiary, Harbin Golden Sea, produced $2,123,450 in income during the six months of 2008, and $1,175,560 during the quarter ended June 30, 2008. However, because we own only 90% of Harbin Golden Sea, we deducted a “minority interest” of $212,345 for the six months and $117,556 for the three months ended June 30, 2008 before recognizing net income on our Statement of Income and Comprehensive Income. After that deduction and taking into account the income and expenses incurred by the parent corporation, our net income for the first six months of 2008 was $2,108,856, representing $.10 per share. In the first six months of 2007 we realized $961,279 in net income, or $.04 per share. Net income for the quarter ended June 30, 2008 was $1,323,348 ($.07 per share), compared to $814,818 ($03 per share) in the second quarter of 2007.

Our business operates primarily in Chinese Renminbi, 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. In the first six months of 2008, the effect of converting our financial results to Dollars was to add $941,023 to our comprehensive income.

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 June 30, 2008 we had working capital totaling $3,971,680 (an increase of $1,727,156 since the end of 2007) and no debt.

Despite net income of $2,108,865 during the first six months of 2008, only $973,908 in cash was provided by our operations. The disparity between our net income and cash flow from operations was primarily attributable to the $2,418,655 increase in our trade receivables resulting from the increase in sales during the six months ended June 30, 2008. In addition, we increased our inventories by $899,980 during the recent six month period in anticipation of continued growth in sales.

Our cash position fell by $1,182,092 during the six months ended June 30, 2008. We applied the greater portion of our cash reserves to our two recent real estate acquisitions: a new production facility that we contracted to purchase for $1,843,800, and a 12 story office building in Harbin that we purchased for $3,483,465, of which we paid $2,699,850 during 2007. We are currently considering whether to develop the Harbin office building as a tourist destination or to sell it. If we decide to sell it, the proceeds will be applied to further developing our production capacity.

Harbin Golden Sea’s business plan calls for significant investment in the growth of Harbin Golden Sea during 2008. We plan to purchase new equipment for our new production facility. We also plan to invest in the development of additional product lines, although the amount that we apply to that purpose will depend on our success in obtaining investment capital. To date, however, we have not received any commitment of funds.

Our capital is sufficient to fund our operations at their current level for the foreseeable future. Significant growth, however, will require that we obtain additional capital or incur debt.

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.

Risk Factors That May Affect Future Results

You should carefully consider the risks described below before buying our common stock. If any of the risks described below actually occurs, that event could cause the trading price of our common stock to decline, and you could lose all or part of your investment.

I. Risks attendant to our business

We may not be able to adequately protect our intellectual property, which could cause us to be less competitive.

We are continuously designing and developing new technology. We rely on a combination of copyright and trade secret laws and restrictions on disclosure to protect our intellectual property rights. Unauthorized use of our technology could damage our ability to compete effectively. In China, monitoring unauthorized use of our products is difficult and costly. In addition, intellectual property law in China is less developed than in the United States and historically China has not protected intellectual property to the same extent as it is protected in other jurisdictions, such as the United States. Any resort to litigation to enforce our intellectual property rights could result in substantial costs and diversion of our resources, and might be unsuccessful.

Currency fluctuations may adversely affect our business.

We generate revenues and (with one exception) incur expenses and liabilities in Chinese RMB. However we report our financial results in the United States in U.S. Dollars. As a result, we are subject to the effects of exchange rate fluctuations between these currencies. Recently, there have been suggestions made to the Chinese government that it should adjust the exchange rate and end the linkage that in recent years has held the RMB-U.S. dollar exchange rate constant. If the RMB exchange rate is adjusted or is allowed to float freely against the U.S. dollar, our revenues, which are denominated in RMB, may fluctuate significantly in U.S. dollar terms. We have not entered into agreements or purchased instruments to hedge our exchange rate risks.

Our business and growth will suffer if we are unable to hire and retain key personnel that are in high demand.

Our future success depends on our ability to attract and retain highly skilled engineers, draftsmen, and technicians, as well as sales personnel experienced in international sales. Qualified individuals are in high demand in China, and there are insufficient experienced personnel to fill the demand. Therefore we may not be able to successfully attract or retain the personnel we need to succeed.

We may have difficulty establishing adequate management and financial controls in China.

The People’s Republic of China has only recently begun to adopt the management and financial reporting concepts and practices that investors in the United States are familiar with. We may have difficulty in hiring and retaining employees in China who have the experience necessary to implement the kind of management and financial controls that are expected of a United States public company. If we cannot establish such controls, we may experience difficulty in collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet U.S. standards.

Capital outflow policies in China may hamper our ability to pay dividends to shareholders in the United States.

The People’s Republic of China has adopted currency and capital transfer regulations. These regulations require that we comply with complex regulations for the movement of capital. Although Chinese governmental policies were introduced in 1996 to allow the convertibility of RMB into foreign currency for current account items, conversion of RMB into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration of Foreign Exchange. We may be unable to obtain all of the required conversion approvals for our operations, and Chinese regulatory authorities may impose greater restrictions on the convertibility of the RMB in the future. Because most of our future revenues will be in RMB, any inability to obtain the requisite approvals or any future restrictions on currency exchanges will limit our ability to fund our business activities outside China or to pay dividends to our shareholders.

We have limited business insurance coverage.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products, and do not, to our knowledge, offer business liability insurance. As a result, we do not have any business liability insurance coverage for our operations. Moreover, while business disruption insurance is available, we have determined that the risks of disruption and cost of the insurance are such that we do not require it at this time. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.

Our bank deposits are not insured.

There is no insurance program in the PRC that protects bank deposits, in the way that bank deposits in the U.S. are given limited protection by the FDIC. If the bank in which we maintain our cash assets were to fail, it is likely that we would lose most or all of our deposits.

II. Risks attendant to our management

The absence of independent directors on our board of directors may limit the quality of management decision making.

Each of the three members of our Board of Directors is also an employee of Harbin Golden Sea. There is no audit committee of the board and no compensation committee. This situation means that the Board will determine the direction of our company without the benefit of an objective perspective and without the contribution of insights from outside observers. This may limit the quality of the decisions that are made. In addition, the absence of independent directors in the determination of compensation may result in the payment of inappropriate levels of compensation.

Our business development would be hindered if we lost the services of our Chairman.

Tian Ling is the Chief Executive Officer of Xinyinhai Technology, Ltd. and of its operating subsidiary, Harbin Golden Sea Technology Printing Co., Ltd. Mrs. Tian is responsible for strategizing not only our business plan but also the means of financing it. If Mrs. Tian were to leave Xinyinhai or become unable to fulfill her responsibilities, our business would be imperiled. At the very least, there would be a delay in the development of Xinyinhai until a suitable replacement for Mrs. Tian could be retained.

Xinyinhai is not likely to hold annual shareholder meetings in the next few years.

Management does not expect to hold annual meetings of shareholders in the next few years, due to the expense involved. The current members of the Board of Directors were appointed to that position by the previous directors. If other directors are added to the Board in the future, it is likely that the current directors will appoint them. As a result, the shareholders of Xinyinhai will have no effective means of exercising control over the operations of Xinyinhai.

Your ability to bring an action against us or against our directors, or to enforce a judgment against us or them, will be limited because we conduct all of our operations in China and because our management resides outside of the United States.

We conduct all of our operations in China through our wholly-owned subsidiary. All of our directors and officers reside in China and all of the assets of those Chinese residents are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the United States and of China may render you unable to enforce a judgment against our assets or the assets of our directors.

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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 June 30, 2008. 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 June 30, 2008 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 second 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 6.	Exhibits
	31.1	Rule 13a-14(a) Certification – Chief Executive Officer
	31.2	Rule 13a-14(a) Certification – Chief Financial Officer
	32	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: August 12, 2008	By:	/s/ Tian Ling
		Tian Ling, Chief Executive Officer

	By:	/s/ Du Song
		Du Song, Chief Financial Officer, Chief Accounting Officer

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