ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS.

Results of Operations

Our revenue in 2008 increased by 12.4% over the revenue realized in 2007. The increase was entirely attributable to our equipment distribution business, whose revenues improved by 58.9% over equipment distribution revenues in 2007. 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. In addition, since we purchase the cutting equipment with US Dollars and sell it for Chinese Renminbi, the stabilization of the Dollar versus the RMB has enabled us to price our products more aggressively. The result was that equipment distribution contributed 32% of our revenue for the year, which was a substantially greater portion than in prior years.

Revenue from our printing business fell by 3.8% in 2008 compared to 2007. The decline occurred because we started the year lacking production space and ended the year moving our entire production operation to a larger facility, all of 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. At March 17, 2009 we had $1,147,761 in backlog of firm orders, all of which is for delivery during 2009.

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 are currently exploring financing possibilities, but have not yet received a commitment for the funds.

The 37% gross margin realized by our subsidiary, Harbin Golden Sea, on sales in 2008 was lower than the 41% gross margin realized in 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 45%, albeit within a range of 35% 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 16.1% in 2007 to 12.1% in 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 an amortization of prepaid expenses charge of $711,369 in the 2007. Our amortization of prepaid expenses charge for 2008, however, was only $121,294, 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. That cancellation, and the corresponding cancellation of a portion of the shares issued in 2006, allowed us to recognize "other income" of $376,250, which contributed to an aggregate "other income" of $376,258 during 2008.

Our efforts to improve the efficiency of our marketing operations continued to yield benefits. During 2008, despite the 12% increase in revenue, our selling expenses ($453,711 - 3.3% of revenue) decreased by 5.6% from the selling expenses recorded in 2007 ($480,853 - 3.9% 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 services, 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, Harbin Golden Sea, qualified for a two year exemption from Chinese income taxes. Commencing in 2008, we are eligible for three years of taxation at 50% of the statutory income tax rate. Accordingly, Harbin Golden Sea was subject to a preferential tax rate of 9% in 2008, and will be subject to a preferential tax rate of 10% for 2009 and 11% for 2011. As a result of this government allowance, we incurred no income tax in 2007, but were taxed at a 9% rate in 2008, causing an expense of $353,450.

The operations of our subsidiary, Harbin Golden Sea, produced $3,358,850 in income during 2008. However, because we own only 90% of Harbin Golden Sea, we deducted a "minority interest" of $335,885 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 2008 was $3,037,947, representing $.15 per share, a 15% increase over the net income we achieved in 2007.

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. In 2008, the effect of converting our financial results to Dollars was to add $987,596 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 December 31, 2008 we had working capital totaling $7,297,883 (an increase of $5,053,359 since the end of 2007) and no long-term liabilities.

Despite net income of $3,037,947 during our operations consumed $508,500 in cash. The disparity between our net income and cash flow from operations was primarily attributable to:

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the $1,396,031 increase in our trade receivables, which resulting from the increase in sales during 2008;

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the $1,428,822 increase in our other receivables, deposits and prepayments, which primarily reflects the proceeds from the sale of a building that we have not yet received; and

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the $658,723 increase in inventories, which reflects our preparation for increased sales in the future.

Our cash position fell by $813,817 during 2008, due primarily to the cash used in operations and the funds that we applied to the development of our new manufacturing facility. In addition, during the first six months of 2008 we applied cash to the acquisition of a 12 story office building in Harbin that we purchased for $3,483,465, of which we paid $2,699,850 during 2007. In August 2008, however, we cancelled that project, and sold the building to an unrelated third party for an amount equal to our original purchase price.

Harbin Golden Sea's business plan calls for significant investment in the growth of Harbin Golden Sea during 2009. 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.

Critical Accounting Policies and Estimates

In preparing our financial statements we are required to formulate working policies regarding valuation of our assets and liabilities and to develop estimates of those values. In our preparation of the financial statements for 2008, there were two estimates made which were (a) subject to a high degree of uncertainty and (b) material to our results. These estimates were:

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Our decision, explained in Note 3 to the Consolidated Financial Statements, to record a $6,024 provision for doubtful accounts, against total trade receivables of $2,907,933. This decision was based on our knowledge of the customers and their history of full payment.

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Our decision, described in Note 8 to the Consolidated Financial Statements, to record no provision for obsolete inventories. This decision was based on fact that we have orders in house for all of our finished inventory and work in progress, while the raw materials are currently usable.

We have made no material changes to our critical accounting policies in connection with the preparation of financial statements for 2008.