10-Q/A

U. S. Securities and Exchange Commission

Washington, D. C. 20549

FORM 10-Q/A

Amendment #1

[X]	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2011
[  ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _____ to _____

Commission File No. 0-54259

CHINA SURE WATER (USA) INC.

(Name of Registrant in its Charter)

New York	11-3137508
(State or Other Jurisdiction of	(I.R.S. Employer I.D. No.)
incorporation or organization)

14 Wall Street, 20th Floor, New York, NY 10005

(Address of Principal Executive Offices)

Issuer's Telephone Number: 646-783-2638

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 subjected to such filing requirements for the past 90 days.

Yes X                   No X 

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     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 ___   Smaller 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 15, 2011

Common Voting Stock: 20,777,200

This Form 10-Q/A is filed solely to include XBRL documents. 

Item 6.     Exhibits

101.INS	XBRL Instance
101.SCH	XBRL Schema
101.CAL	XBRL Calculation
101.DEF	XBRL Definition
101.LAB	XBRL Label
101.PRE	XBRL Presentation

1

SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CHINA SURE WATER (USA) INC.
Date:  September 7, 2011	By: /s/ Xinhong Guo
	Name:  Xinhong Guo
	Title: Chief Executive Officer

Date: September 7, 2011	By: /s/ Xiaojie Guo
	Name:  Xiaojie Guo
	Title: Chief Financial and Accounting Officer

2

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BALANCE SHEET PARENTHETICAL (USD $)	Jun. 30, 2011	Dec. 31, 2010
Common stock par value	$ 0.001	$ 0.001
Common stock shares authorized	400,000,000	400,000,000
Common stock shares issued	20,777,200	20,127,200
Common stock shares outstanding	20,777,200	20,127,200

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Sales	$ 4,713,360	$ 2,689,322	$ 6,196,551	$ 3,468,460
Cost of goods sold	1,761,568	1,416,785	2,370,747	1,923,231
Gross Profit	2,951,792	1,272,537	3,825,804	1,545,229
Selling expenses	14,837	8,698	19,783	11,825
General and administrative expenses	187,033	128,339	323,225	212,002
Total cost and expenses	201,870	137,037	343,008	223,827
INCOME FROM OPERATIONS	2,749,922	1,135,500	3,482,796	1,321,402
Interest income (expense, net of interest income)	(86,881)		(113,097)
INCOME BEFORE INCOME TAXES	2,663,041	1,135,500	3,369,699	1,321,402
Income tax expense	657,633	265,457	816,057	293,647
NET INCOME	2,005,408	870,043	2,553,642	1,027,755
Foreign currency translation adjustment	104,873	17,349	161,715	17,400
COMPREHENSIVE INCOME	$ 2,110,281	$ 887,392	$ 2,715,357	$ 1,045,155
Net income per share basic and diluted	$ 0.10	$ 0.09	$ 0.12	$ 0.10
Weighted average shares outstanding basic	20,777,200	10,000,000	20,565,322	10,000,000
Weighted average shares outstanding diluted	20,777,200	10,000,000	20,565,322	10,000,000

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Document and Entity Information (USD $)	3 Months Ended
	Jun. 30, 2011	Aug. 15, 2011
Document and Entity Information
Entity Registrant Name	China Sure Water (USA) Inc.
Document Type	10-Q
Document Period End Date	Jun. 30, 2011
Amendment Flag	false
Entity Central Index Key	0001510256
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		20,777,200
Entity Public Float	$ 0
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2

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Property and Equipment

3 Months Ended

Jun. 30, 2011

Property, Plant, and Equipment

Property, Plant and Equipment Disclosure [Text Block]

8              PROPERTY AND EQUIPMENT

A summary of property and equipment and the estimated lives used in the computation of depreciation and amortization is as follows:

	June 30,			December 31,
	2011			2010			Life
	(Unaudited)
Machinery and equipment	$	1,330,420		$	1,304,620		15 years
Vehicle		23,205			22,755		10 years
Office equipment		8,478			8,313		5 years
		1,362,103			1,335,688
Less: accumulated depreciation		(285,393	)		(234,402	)
	$	1,076,710		$	1,101,286

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Concentrations

3 Months Ended

Jun. 30, 2011

Risks and Uncertainties

Concentration Risk Disclosure [Text Block]

13	CONCENTRATIONS
	(a)	Major customer
	Sales to five major customers for the six months ended June 30, 2011 were 21%, 16%, 15%, 14% and 12%.  Sales to four major customers for the six months ended June 30, 2010 were 23%, 19%, 18%, and 10%.
	Sales to four major customers for the three months ended June 30, 2011 were 24%, 21%, 20%, and 10%.  Sales to three major customers for the three months ended June 30, 2010 were 25%, 19%, and 17%.
	(b)	Major vendors
	The Company purchased 100% and 95% of its raw materials from one supplier for the six months ended June 30, 2011 and 2010, respectively.
	The Company purchased 100% of its raw materials from one supplier for the three months ended June 30, 2011 and 2010, respectively.

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Inventory

3 Months Ended

Jun. 30, 2011

Inventory

Inventory Disclosure [Text Block]

4              INVENTORIES

Inventories consist of the following:

	June 30,		December 31,
	2011		2010
	(Unaudited)
Raw materials	$	254,536	$	416,038
Finished goods		217,372		108,439
	$	471,908	$	524,477

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Convertible Notes

3 Months Ended

Jun. 30, 2011

Debt

Debt Disclosure [Text Block]

10           CONVERTIBLE NOTES

On March 1, 2011, the Company received gross proceeds of $650,000 from the sale of 650,000 shares of common stock and convertible notes (the “Note”) to various investors. The Notes bears interest at fifteen percent (15%) per annum payable quarterly.  Principal is payable on December 1, 2011. If the Company completes a debt or equity financing for gross proceeds of $5 million or more, each Note holder shall have the right, at his option, at any time on or before the satisfaction of the Notes, to convert the principal amount of the Notes and interest accrued through the date of conversion into the securities issued in the Financing at a twenty-five percent (25%) discount to the offering price.

Total financing costs directly associated with the issuance of the common stock and notes were $20,000, including $6,014 associated with the issuance of common stock and $13,986 associated with the issuance of the Notes.  Financing costs associated with the issuance of common stock are recorded as the offset against the additional paid in capital.  Financing costs associated with the issuance of the Note are recorded as deferred financing costs in the balance sheet at grant date. The Company is amortizing these financing costs over the life of the Notes.  The amortization for the six months ended June 30, 2011 was $6,216.

The Company allocated the total proceeds from the financing between the common stock and the Notes according to their estimated fair values as of the issuance date.  The initial value assigned to the Notes was $454,545.  The debt discount resulting from the allocation of the proceeds to the value of the common stock issued is being amortized over the life of the Notes as additional interest expense.  The amortization for the six months ended June 30, 2011 was $86,869.

Convertible notes outstanding as of June 30, 2011 are as follows:

Convertible notes issued	$	650,000
Less: debt discount		(108,586	)
Balance - June 30, 2011	$	541,414

Interest is accrued on the principal amount at 15% per annum.  For the six months ended June 30, 2011, the Company accrued interest of $32,500 on the convertible notes.

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Vulnerability due to Operations in PRC

3 Months Ended

Jun. 30, 2011

Commitment and Contingencies

Legal Matters and Contingencies [Text Block]

15           VULNERABILITY DUE TO OPERATIONS IN PRC

The Company’s operations may be adversely affected by significant political, economic and social uncertainties in the PRC.  Although the PRC government has been pursuing economic reform policies for more than twenty years, no assurance can be given that the PRC government will continue to pursue such policies or that such policies may not be significantly altered, especially in the event of a change in leadership, social or political disruption or unforeseen circumstances affecting the PRCs political, economic and social conditions.  There is also no guarantee that the PRC government’s pursuit of economic reforms will be consistent or effective.

Substantially all of the Company’s business is transacted in RMB, which is not freely convertible.  The People’s Bank of China or other banks are authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China.  Approval of foreign currency payments by the People’s Bank of China or other institutions requires submitting a payment application together with suppliers’ invoices, shipping documents and signed contracts.

Since the Company has its primary operations in the PRC, its revenues will be settled in RMB, not U.S. Dollars. Due to certain restrictions on currency exchanges that exist in the PRC, the Company’s ability to use revenue generated in RMB to pay any dividend payments to its shareholders outside of China may be limited.

In September 2006, PRC changed the laws regarding transfer of equity in PRC companies in exchange for equity in non-PRC companies.  Approvals and registrations for such transfers are required and penalties may be imposed if the requirements are not met.

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Accrued Expenses

3 Months Ended

Jun. 30, 2011

Payables and Accruals

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

11           ACCRUED EXPENSES

Accrued expenses consist of the following: 

	June 30,		December 31,
	2011		2010
	(Unaudited)
Professional fees	$	13,588	$	63,832
Bonus		53,526		57,949
Sales commission		149,487		191,795
Interest		32,500		-
	$	249,101	$	313,576

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Related Party Transactions and Balances

3 Months Ended

Jun. 30, 2011

Related Party Disclosures

Related Party Transactions Disclosure [Text Block]

9              RELATED PARTY TRANSACTIONS AND BALANCES

Transactions

	Six months ended June 30,
	2011		2010
	(Unaudited)		(Unaudited)
Rent (1)	$	54,145	$	51,342
Social insurance (2)		-		3,433
Purchases (3)		-		324,666
Total	$	54,145	$	379,441

(1)	The Company rented its administrative office from its majority shareholder and officer.
(2)	A company owned by the majority shareholder of the Company paid expenses on behalf of the Company.
(3)	The Company purchased raw materials and finished goods from a company which through August, 2010 was owned by the majority shareholder of the Company.

Balances

Due to related parties consist of the following:

	June 30,		December 31,
	2011		2010
	(Unaudited)
Due to the majority shareholder of the Company	$	54,145	$	-

These amounts are non-interest bearing and due on demand.

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Basis of Presentation

3 Months Ended

Jun. 30, 2011

Organization, Consolidation and Presentation of Financial Statements

Basis of Accounting [Text Block]

1              BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the requirements for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. However, the information included in these interim financial statements reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The balance sheet as of December 31, 2010 was derived from the audited financial statements included in the Company’s registration statement on Form 10. These interim financial statements should be read in conjunction with that report. For further information, refer to the financial statements and footnotes thereto included in the Company’s registration statement on Form 10.

The accompanying financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and are presented in U.S. Dollars.

The financial statements include the financial statements of the Company and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

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Prepaid Rent

3 Months Ended

Jun. 30, 2011

Prepaid Rent {1}

Prepaid Rent

5              PREPAID RENT

In January 2010, the Company entered into a five year lease agreement with an unrelated third party providing for annual rent of RMB1,200,000 (approximately $176,000). The Company paid RMB6,000,000(approximately $880,000) representing five years rent in advance in April, 2010. Prepaid rent is being amortized on the straight line basis over the life of the lease. As of June 30, 2011 and December 31, 2010, the prepaid rent – current portion were $185,640 and $182,040.

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Other Prepaid Expenses

3 Months Ended

Jun. 30, 2011

Other Prepaid Expenses

Other Prepaid Expenses

6              OTHER PREPAID EXPENSES

As of June 30, 2011 and December 31, 2010, the prepaid expenses were $220,884 which include miscellaneous prepaid expenses of $213,114 and unamortized deferred financing costs of $7,770.  and $nil respectively.

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Commitments and Contingencies

3 Months Ended

Jun. 30, 2011

Commitment and Contingencies

Commitments and Contingencies Disclosure [Text Block]

14           COMMITMENTS AND CONTINGENCIES

The Company is committed under operating leases with its principal shareholder which provide for rentals of approximately $53,445 Through December 31, 2011.  Rental expense charged to operations for the six months ended June 30, 2011 and 2010 aggregated approximately $145,065 and $227,370, respectively, including approximately $53,000 and $51,000, respectively, paid to the Company’s principal shareholder.

See note 5 relating to prepaid rent.

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Investment Deposit

3 Months Ended

Jun. 30, 2011

Business Combinations

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

7              INVESTMENT DEPOSIT

In October 2010, the Company signed a letter of intent for a potential acquisition and made a refundable deposit to the seller of RMB6,000,000 (approximately $900,000).

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
OPERATING ACTIVITIES:
NET INCOME	$ 2,553,642	$ 1,027,755
Depreciation	45,756	24,405
Deferred tax assets	(13,536)	23,417
Amortization of prepaid rent	91,620
Amortization of discount on convertible notes	86,869
Amortization of deferred financing costs	12,230
Change in Accounts receivable	814,502	(940,562)
Change in Inventories	62,127	438,517
Change in Prepaid expenses	(220,884)	(795,420)
Change in Taxes payable	496,129	32,722
Change in Accrued expenses	(69,917)	(192,813)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	3,858,538	(381,979)
FINANCING ACTIVITIES:
Loan from related party	53,445	377,571
Proceeds from issuance of common stock and convertible notes, net of deferred financing costs	630,000
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	683,445	377,571
EFFECT OF EXCHANGE RATES ON CASH	121,184	19,319
INCREASE (DECREASE) IN CASH	4,663,167	14,911
CASH - BEGINNING OF YEAR (PERIOD)	5,072,181	2,431,373
CASH - END OF YEAR (PERIOD)	9,735,349	2,446,284
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes	$ 617,692	$ 488,781

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Business Description and Summary of Significant Accounting Policies

3 Months Ended

Jun. 30, 2011

Accounting Policies

Business Description and Accounting Policies [Text Block]

2              BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

China Sure Water (USA) Inc. (the “Company”) is a U.S. holding company incorporated in New York. The Company, through its wholly owned subsidiary in China, is engaged in the production and marketing of water softeners for residential use in the People’s Republic of China (“PRC” or “China”)

China Sure Water (USA) Inc. (“Sure Delaware”) was incorporated in the State of Delaware on February 25, 2008. Sure Delaware had no operations since its inception. Sure Delaware owned 60% of Sure (China) Water Science and Technology Co., Ltd. (“Sure China”), and Sure Delaware’s wholly-owned subsidiary, Sure Water Quality Control Technology (China) Inc. Limited, owns the remaining 40% of Sure China.

Sure China was incorporated under the laws of the Peoples Republic of China (“PRC”) as a limited liability company on March 23, 2007. In July 2008, through a recapitalization transaction which was accomplished as an exchange of shares between Sure China and Sure Delaware, Sure China became a subsidiary of Sure Delaware. Retroactive effect to the capitalization has been given in the accompanying financial statements.

 

After its previous business of developing biometric security devices failed in 2005, the Company (then known as “Biometrics 2000 Corporation”) entered into bankruptcy proceedings.  In 2010 the bankruptcy court approved a plan to reorganize the company in connection with a merger with Sure Delaware.

On October 5, 2010, to complete the reorganization, Sure Delaware merged into the Company and shares representing 85% of the issued and outstanding shares of the Company were issued to the shareholders of Sure Delaware. The Company accounts for this transaction as a reverse merger pursuant to which the New York corporation will be the surviving corporation for legal purposes and Sure Delaware will be the surviving corporation for financial reporting purposes. After the merger, the name of the Company was changed to China Sure Water (USA) Inc.

On June 3, 2011, The company formed SURE (Shihezi) Water Co., Ltd.. (“Shihezi”) in Shihezi, Xinjiang Province, China, as wholly owned foreign entiyt (WOFE). Shihezi is engaged in the distribution and marketing of water softeners, water filtration and purification equipment for both commercial and residential use in Xinjiang Province,China. The company invested in USD 310,000 (about 2,000,000 RMB) in cash as initial registered capital. The life of the WOFE is 50 years.  

Use of estimates in the preparation of financial statements

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period.  Actual results could differ from those estimates.

Revenue recognition

Revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured.  Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers.

The Company’s sales agreements contain clauses that grant customers the right to return or exchange products within a year. The Company accounts for sales under the guidance of FASB ASC 605-15-25, “Revenue Recognition When Right of Return Exists”.  There have been no returns from customers since inception.

Shipping and handling costs

In accordance with ASC 605-45-45 “Accounting for Shipping and Handling Fees and Costs”, all amounts billed to customers in a sales transaction for shipping and handling are classified as revenue.

Cash

The Company maintains cash with financial institutions in the People’s Republic of China (“PRC”) which are not insured or otherwise protected.  Should any of these institutions holding the Company’s cash become insolvent, or if the Company is unable to withdraw funds for any reason, the Company could lose the cash on deposit with the institution.

Accounts Receivable

Accounts receivables represent customer accounts receivables. The allowance for doubtful accounts is based on a combination of current sales, historical charge-offs and specific accounts identified as high risk. Uncollectible accounts receivable are charged against the allowance for doubtful accounts when all reasonable efforts to collect the amounts due have been exhausted. Such allowances, if any, would be recorded in the period the impairment is identified. There was no allowance for doubtful accounts as of June 30, 2011 or December 31, 2010.

Inventories

Inventories consist of raw materials and finished goods and are stated at the lower of cost, determined using the weighted average cost method, and net realizable value.

Property and equipment

Property and equipment are recorded at cost.  Depreciation is provided in amounts sufficient to amortize the cost of the related assets over their useful lives using the straight-line method for financial reporting purposes.

Maintenance, repairs and minor renewals are charged to expense when incurred.  Replacements and major renewals are capitalized.

Warranty

The Company offers a limited three-year warranty to customers and accounts for warranty reserves according to  ASC 450-20-25 which states that, because of the uncertainty surrounding claims that may be made under warranties, warranty obligations fall within the definition of a contingency. Losses from warranty obligations shall be accrued when the conditions in paragraph 450-20-25-2 are met. The Company has not historically had any warranty claims nor has been informed of any problems from its customers, and therefore has no reasonable basis to estimate any potential liability and there has been no information available prior to the financial statements being issued that a liability had been incurred at the date of the financial statements. Accordingly, no reserve for warranty claims has been recorded as of June 30, 2011 or December 31, 2010.

Impairment of long-lived assets

The Company accounts for the impairment of long-lived assets in accordance with the guidance of FASB ASC 360-10-20.  Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable.  For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value.  If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value.  Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable.  Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.  Based on its review, the Company believes that, as of June 30, 2011 and December 31, 2010, there was no impairment of its long-lived assets.

Deferred income taxes

The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes”, which requires that deferred tax assets and liabilities be recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  In addition, ASC 740 requires recognition of future tax benefits, such as carry forwards, to the extent that realization of such benefits is more likely than not and that a valuation allowance be provided when it is more likely than not that some portion of the deferred tax asset will not be realized.  Management reviews this valuation allowance periodically and makes adjustments as warranted.

Currency translation

Since the Company operates primarily in the PRC, the Company’s functional currency is the Chinese Yuan (”RMB”).  Revenue and expense accounts are translated at the average rates during the period, and balance sheet items are translated at year-end rates.  Translation adjustments arising from the use of differing exchange rates from period to period are included as a separate component of shareholders’ equity.  Gains and losses from foreign currency transactions are recognized in current operations.

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.

Other comprehensive income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.  Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements.  Comprehensive income includes net income and the foreign currency translation gain, net of tax.

Fair value of financial instruments

FASB ASC 825, “Financial Instruments”, requires that the Company disclose estimated fair values of financial instruments.

The Company’s financial instruments primarily consist of cash, accounts receivables, accounts payable and accrued expenses.

As of the balance sheet dates, the estimated fair values of financial instruments were not materially different from their carrying values as presented on the balance sheet.  This is attributed to the short maturities of the instruments. The estimation of fair value is generally measured by discounting expected future cash flows as the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the information available, judgments and projections are considered necessary. There was no impairment of long-lived assets as of June 30, 2011 and December 31, 2010.

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Taxes

3 Months Ended

Jun. 30, 2011

Income Taxes

Income Tax Disclosure [Text Block]

12           TAXES

Corporation income tax

The Company is governed by the Income Tax Law of the People’s Republic of China concerning privately run and foreign invested enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments.

The reconciliation of income tax expense at the U.S. statutory rate of 35% for the six months ended June 30, 2011 and 2010 to the Company’s effective tax rate is as follows:

	For the six months ended June 30,
	2011			2010
	(Unaudited)			(Unaudited)
U.S. statutory rate at 35%	$	1,179,395		$	462,491
Tax rate difference between China and U.S.		(352,242	)		(132,140	)
Permanent difference related to GAAP and Chinese tax law		(64,547	)		(61,610	)
Change in valuation allowance		53,451			-
Tax exempt income		-			24,906
Effective tax rate	$	816,057		$	293,647

The provisions for income taxes are summarized as follows:

	For the six months ended June 30,
	2011			2010
	(Unaudited)			(Unaudited)
Current - foreign	$	829,593		$	270,230
Deferred - foreign		(13,536	)		23,417
Deferred - United States		(53,451	)		-
Valuation allowance - United States		53,451			-
	$	816,057		$	293,647

Value added tax (“VAT”)

Enterprises or individuals who sell commodities, engage in repair and maintenance or import or export goods in the PRC are subject to a value added tax in accordance with the PRC laws. The value added tax standard rate is 17% of the gross sales price. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on the sales of the finished products.

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Subsequent Events

3 Months Ended

Jun. 30, 2011

Subsequent Events

Subsequent Events [Text Block]

16           SUBSEQUENT EVENTS

The Company has evaluated events after the date of these financial statements through the date these financial statements were issued.  There were no other material subsequent events as of that date.

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CONSOLIDATED BALANCE SHEETS (USD $)	Jun. 30, 2011	Dec. 31, 2010
Cash	$ 9,735,349	$ 5,072,181
Accounts receivable		809,168
Inventories	471,908	524,477
Prepaid rent - current portion	185,640	182,040
Other prepaid expenses	220,884
Investment deposit	928,200	910,200
Deferred tax assets	157,004	143,468
TOTAL CURRENT ASSETS	11,698,985	7,641,534
Property and equipment, net of accumulated depreciation	1,076,710	1,101,286
Prepaid rent	464,100	546,120
TOTAL ASSETS	13,239,795	9,288,940
Taxes payable	1,139,284	624,311
Accrued expenses	249,101	313,576
Due to related party	54,145
Convertible notes	541,414
TOTAL CURRENT LIABILITIES	1,983,944	937,887
Common stock, par value $0.001, 400,000,000 shares authorized, 20,777,200 and 20,127,200 shares issued and outstanding at June 30, 2011 and December 31, 2010	20,777	20,127
Additional paid-in capital	629,321	440,530
Retained earnings	10,041,140	7,487,498
Other comprehensive income	564,613	402,898
TOTAL STOCKHOLDERS' EQUITY	11,255,851	8,351,053
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 13,239,795	$ 9,288,940