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. In the first quarter of 2009, this situation had a negative impact on both of our business segments. Overall, our revenue in the three months ended March 31, 2009 decreased by 29% from the revenue achieved in the three months ended March 31, 2008. The decrease was most dramatic in our equipment distribution business, where revenues declined by 45%. The decline in equipment distribution reflected delays in the construction of new manufacturing facilities, 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 22% contribution to our overall revenue, 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 23% in the first quarter of 2009 compared to the first quarter 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 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 the first quarter of 2009 was lower than the 40% gross margin realized in the first quarter of 2008. The reason for the fall-off was the sharp decline in profits from equipment sales in the first quarter of 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. 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.

Our general and administration expenses did not differ materially from quarter to quarter. This stability was achieved despite a 48% increase in depreciation and amortization, which was counterbalanced by the favorable results of our continuing efforts to achieve efficiencies in our operations. Selling expenses, however, increased by 80%, from $67,227 to $121,266. The increase reflected our efforts to sustain our sales momentum despite the effects of the recession. 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 are subject to preferential 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 quarter of 2008, causing an expense of $135,413, and at a 10% rate in the first quarter of 2009, causing an expense of $64,674.

The operations of our subsidiary, Harbin Golden Sea, earned a net income of $461,800 during the first quarter of 2009. However, because we own only 90% of Harbin Golden Sea, we deducted a "noncontrolling interest" of $46,181 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 for the first quarter of 2009 was $367,289, representing $0.019 per share, a 53% decrease from the net income we achieved in the first quarter of 2008.

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 the first quarter of 2009, the effect of converting our financial results to Dollars was to reduce our comprehensive income by $16,476.

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 March 31, 2009, we had working capital totaling $7,708,696 (an increase of $410,813 since the end of 2008) and no long-term liabilities.

Our $369,627 in net cash flow from operations during the first quarter of 2009 approximated our net income of $367,289 during the quarter. This stability occurred as our inventories and accounts receivable remained relatively stable, while we offset a decrease in "other payables" with monies collected on account of "other receivables" and "trade receivables."

Our cash position increased by $270,837 during the first quarter of 2009, as we slowed our growth to conserve cash. Our only capital expenditure during the quarter was an addition of $98,101 to the equipment in our new manufacturing facility.

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.

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.

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