UNITED STATES


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 September 30, 2010





o    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from _____ to _____





Commission File No. 0-28683





VANTONE INTERNATIONAL GROUP INC.(Name of Registrant as Specified in its Charter)





Nevada
41-1954595(State or Other Jurisdiction of incorporation or organization)
(I.R.S.  Employer Identification No.)





NO. 195 ZHONGSHAN RD, HEPING DISTRICT

SHENYANG, LIAONING PROVINCE

PEOPLE’S REPUBLIC OF CHINA(Address of principal executive offices)86-24-2286-6686(Registrant’s telephone number including area code)





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 o





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 o No o





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No x





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





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: On November 15, 2010, there were 30,001,000 shares of Common Stock, par value $.001 per share, outstanding.











VANTONE INTERNATIONAL GROUP INC.


FORM 10-Q


QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010





TABLE OF CONTENTS





PART I - FINANCIAL INFORMATION

2Item 1: Financial Statements

2Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

20Item 3: Quantitative and Qualitative Disclosures about Market Risk

23Item 4: Controls and Procedures

23PART II - OTHER INFORMATION

24Item 1: Legal Proceedings

24Item 1A: Risk Factors

24Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

24Item 3: Defaults Upon Senior Securities

24Item 4: (Removed & Reserved)

24Item 5: Other Information

24Item 6: Exhibits

24




1




Part I


Financial Information


Item 1.  Financial Statements





Vantone International Group Inc. and SubsidiariesConsolidated Balance Sheets  September 30, 2010


March 31, 2010Assets

(Unaudited)


(Audited)Assets:Current AssetsCash and equivalents

$
9,495,653


$
5,159,615Accounts receivable, net of allowancefor doubtful amounts of $82,764 and $427,164, respectively


749,125



3,849,872Advanced to suppliers


181,660



13,346Inventories


336,049



140,952Advanced to stockholders/officers, net


2,399,922



2,367,998Prepayments and other current assets


242,307



240,405Deferred income tax assets-current


174,909



123,101Total Current Assets


13,579,625



11,895,289Property and Equipment - Net


3,062,390



3,069,362Total Assets


16,642,015



14,964,651Liabilities and Stockholders' EquityLiabilities:Current LiabilitiesAccounts payable and accrued expenses


49,345



161,704Customer deposits


248,634



723,737Taxes payable


613,978



312,558Due to related party


14,945



-Deferred VIP membership revenue


750,585



-Deferred network service revenue-current


4,114



-Other current liabilities


206,760



205,612Total Current Liabilities


1,888,361



1,403,611Deferred Network Service Revenue-Noncurrent


27,767



-Total Liabilities


1,916,128



1,403,611Stockholders' Equity:Vantone International Group EquityCommon stock - $0.001 par value, 100,000,000 sharesauthorized, 30,001,000 shares issued and outstanding *


30,001



29,901Additional paid-in capital


1,919,800



1,887,100Deferred compensation


-



32,800Reserve funds


794,271



724,764Retained earnings


10,990,391



10,155,893Accumulated other comprehensive income


929,134



660,840Total Vantone International Group, Inc. Stockholders' Equity


14,663,597



13,491,298Noncontrolling Interest


62,290



69,742Total Equity


14,725,887



13,561,040Total Liabilities and Stockholders' Equity

$
16,642,015


$
14,964,651
 *: As restated to show recapitalization. The accompanying notes are an integral part of these unaudited consolidated financial statements.


2




Vantone International Group Inc. and SubsidiariesConsolidated Statements of Operations  For Fiscal Three Months Ended September 30,


For Fiscal Six Months Ended September 30,2010


2009


2010


2009(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)RevenuesProducts sold

$
1,497,448


$
2,011,508


$
1,563,440


$
3,927,031Service rendered


9,562



89,938



18,436



246,032Franchise joining fees


-



-



-



1,757VIP membership fees


34,742



-



261,059



-Network service fees


-



-



1,008



-Total Revenues


1,541,752



2,101,446



1,843,943



4,174,820Cost of Goods SoldProducts sold


556,281



1,293,199



587,811



2,342,927Service rendered


8,982



100,218



15,534



243,745Franchise joining cost


-



-



-



98VIP membership cost


1,894



-



14,228



-Network service cost


-



-



55



-Total Cost of Goods Sold


567,157



1,393,417



617,628



2,586,770Gross Profit


974,595



708,029



1,226,315



1,588,050Operating ExpensesSelling expenses


4,127



116,057



5,397



204,631Loss on fixed assets disposal


2,677



-



2,677



-Bad debt recoveries


(256,882
)


-



(347,723
)


-General and administrative expenses


236,442



290,657



478,625



664,897Total Operating Income (Expenses)


(13,636
)


406,714



138,976



869,528Income From Operations


988, 231



301,315



1,087,339



718,522Other Income (Expenses)Interest income, net


3,122



1,959



5,744



3,440Other (expenses) income, net


(4
)


(15
)


(110
)


961Loss on inventories disposal


-



-



-



(6,225
)Total Other Income (Expenses)


3,118



1,944



5,634



(1,824
)Income Before Taxes


991,349



303,259



1,092,973



716,698Provision for Income Taxes


155,025



98,868



196,420



239,867Income Before Noncontrolling Interest


836,324



204,391



896,553



476,831Less: net loss attributable to the noncontrolling interest


(3,901
)


(5,728
)


(7,452
)


(10,224
)
 Net Income Attributable to VantoneInternational Group, Inc.

$
840,225


$
210,119


$
904,005


$
487,055Net Income Per Common Share:- Basic and Diluted

$
0.03


$
0.01


$
0.03


$
0.02Weighted Common Shares Outstanding *- Basic and Diluted


29,971,000



29,901,000



29,971,000



29,901,000
      3


Vantone International Group Inc. and SubsidiariesConsolidated Statements of Comprehensive Income  For The Fiscal Six Months Ended September 30,2010


2009(Unaudited)


(Unaudited)Net Income Before Noncontrolling Interest

$
896,553


$
476,831Other Comprehensive Income:Foreign Currency Translation Adjustment


268,294



7,735Total Comprehensive Income

$
1,164,847


$
484,566







4





Vantone International Group Inc. and SubsidiariesConsolidated Statements of Cash Flows  For The Fiscal Six Months Ended September 30,2010


2009(Unaudited)


(Unaudited)Cash Flows From Operating ActivitiesNet Income

$
904,005


$
487,055Adjustments to Reconcile Net Income to Net CashProvided by Operating ActivitiesBad debt adjustment


(347,723
)


-Depreciation


83,939



79,806Net loss attributable to noncontrolling interest


(7,452
)


(10,224
)Deferred income tax benefits


(48,565
)


(67,769
)Loss on counting inventory


-



6,225Loss on inventories disposal


2,677



-Changes in operating assets and liabilities:Accounts receivable


3,461,759



27,256Advanced to suppliers


(164,729
)


(129,814
)Inventories


(188,465
)


55,039Prepayments and other current assets


2,880



119,202Accounts payable and accrued expenses


(113,333
)


(51,915
)Customer deposits


(480,010
)


315,944Taxes payable


289,302



247,606Deferred VIP membership revenue


750,585



-Other current liabilities


(2,933
)


138,239Deferred network service revenue


31,881



-Net Cash Provided by Operating Activities


4,173,818



1,216,650Cash Flows From Investing ActivitiesPayment for purchase of property and equipment


(4,747
)


(25,613
)Proceeds from related parties return loan


-



172,073Payment to related parties


-



(589,709
)Net Cash Used in Investing Activities


(4,747
)


(443,249
)Cash Flows From Financing ActivitiesPayment for acquired noncontrolling interest


-



(73,249
)Proceeds from stockholders/officers return of advances


-



129,744Payment to stockholders/officers


-



(823,051
)Net Cash Used in Financing Activities


-



(766,556
)Net Increase in Cash and Equivalents


4,169,071



6,845Effect of Exchange Rate Changes on Cash


166,967



9,619Cash and Equivalents at Beginning of Period


5,159,615



1,441,411Cash and Equivalents at End of Period

$
9,495,653


$
1,457,875Supplemental Disclosures of Cash Flow Information:Interest paid

$
-


$
-Income taxes paid

$
2494


$
18,123Supplemental Schedule of Non-Cash Investing and Financing Activities:Other receivable converted to stockholders/officers loan

$
-


$
(1,304,208
)Recorded deferred interest expenses for discount on loan to related parties

$
-


$
(37,986
)






5


Vantone International Group Inc. and Subsidiaries


Notes to Unaudited Consolidated Financial Statements





1.
Interim financial statements:


The unaudited consolidated financial statements of Vantone International Group Inc. and subsidiaries (the "Company") 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 consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The consolidated balance sheet information as of March 31, 2010 was derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K. These interim financial statements should be read in conjunction with that report.





The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany balances and transactions have been eliminated.





2.
Organization and Nature of Operationsa.
Current Condition





Effective on August 17, 2009, the name of the Company was changed from Senior Optician Service Inc. (“Senior Optician”) to “Vantone International Group, Inc. (“Vantone International”)”.





On May 14, 2009, Senior Optician acquired all of the outstanding capital stock of Vantone USA Inc. (“Vantone USA”).





Upon completion of the Share Exchange, there were 29,901,000 shares of Vantone International common stock issued and outstanding. On May 24, 2010, the Company issued additional 100,000 common shares in exchange for the Wilson Warrant. As of result, the Company had 30,001,000 common shares issued and outstanding as of September 30, 2010. The recapitalizations are described in further detail in Note 10 to the accompanying consolidated financial statements.





Vantone USA was incorporated under the laws of Nevada on December 5, 2007. It is a holding company that has owned 100% of the equity in Shenyang Vantone Healthcare Products Manufacturing Co., Ltd. (“Vantone Manufacturing”) since July 14, 2008. Most of Vantone International’s activities are conducted through its wholly own subsidiary, Vantone Manufacturing, and Vantone Manufacturing’s variable interest entities in The People’s Republic of China (“PRC”).





Vantone International, Vantone USA, Vantone Manufacturing, and all of Vantone Manufacturing’s variable interest entities listed below will be called “the Company” in the accompanying consolidated financial statements.


6


Vantone Small Financing





On September 27, 2010, in an attempt to expand the Company’s business in China, Vantone International formed a joint venture with Vantone Yuan that focuses on providing small amount financing and mortgage service to the clients in China. The joint venture operates under the name “Shenyang Heping District Vantone Small Financing and Mortgage Co., Ltd. (“Vantone Small Financing”)”. Vantone Small Financing has registered capital in amount of $10 million. The joint venture agreement provided that Vantone International will contribute $7.07 million and Vantone Yuan will contribute $2.93 million. In exchange for those contributions, the equity in Vantone Small Financing will be allocated 70.7% to Vantone USA and 29.3% to Vantone Yuan. Pursuant to the article of joint venture, both parties have been allowed to make their cash contribution within half year starting from formed date of joint venture, September 27, 2010. As of September 30, 2010, none of them make any of their cash contribution, however, Vantone Yuan has made its cash contribution in amount of RMB20 million (equivalent to $2,996,978) on October 12, 2010. The amount exceed $2.93 million has been recorded as “additional paid-in capital”. The term of this joint venture is 10 years starting from September 27, 2010 to September 26, 2020.





Vantone Manufacturing





Vantone Manufacturing is a foreign owned enterprise that was incorporated under the laws of LiaoNing Province in the PRC on January 9, 2007. Vantone Manufacturing was incorporated under the name “Shenyang Vantone Healthcare Food Co., Ltd.” but adopted its current name on June 20, 2007. Its registered term of operations is fifteen years, from January 9, 2007 to January 8, 2022. Vantone Manufacturing and its KangPing branch engage in manufacturing, processing, and marketing of daily commodities, water purifying equipment, and kitchen and bath equipment. Up to March 2008, Vantone Manufacturing had outsourced all of its manufacturing activities to enterprises in the PRC that are dedicated to manufacturing products exclusively for Vantone Manufacturing.





Vantone Manufacturing’s KangPing branch was approved for cancellation of Industrial and Commercial registration by Liaoning Shenyang Industrial and Commercial Bureau On September 17, 2010.





Entrusted Management of Vantone Yuan





On April 1, 2007, Vantone Manufacturing signed three agreements (Entrusted Management Agreement, Proxy Agreement, and Purchase Option and Cooperation Agreement) with the shareholders of Shenyang Vantone Yuan Trading Co., Ltd. (“Vantone Yuan”).  Vantone Yuan is a private enterprise that was incorporated under the laws of LiaoNing Province.  It was incorporated under the name “Shenyang Tongbida Trading Co., Ltd.” but adopted its current name on June 21, 2007.  The Entrusted Management Agreement stipulates that Vantone Manufacturing will enjoy all of the profits and bear all of the losses arising from the business of Vantone Yuan during Vantone Manufacturing’s management period. The effective terms of these agreements are ten years starting from April 1, 2007.  The terms may be extended by the written agreement among the parties upon the expiration of the agreement. By reason of the Entrusted Management Agreement and its ancillary agreements, Vantone Manufacturing is considered to be the primary beneficiary of the business of Vantone Yuan.  Therefore the financial statements of Vantone Yuan and its subsidiaries are required to be consolidated with the financial statements of Vantone Manufacturing, in accordance with accounting principles generally accepted in the United States (“US GAAP”).  See Note 11 for detailed information regarding the Entrusted Management Agreements.





Vantone Yuan engages in the distribution and sale of daily commodities, consumer electronics, home appliances, health and beauty products and equipment. There have increased internet information service business in Liaoning Province on September 19, 2010. It also engages in the import/export of various merchandise and technologies through a self-conducted trade model or agency arrangement.





During the periods covered by these financial statements, Vantone Yuan also operated through the following subsidiaries:


7


Kang Ping Vantone Trading Co., Ltd (“Kang Ping”)andKang Ping Vantone Yuan Trading Co., Ltd., (“Kang Ping Vantone Yuan”) which were incorporated under the laws of LiaoNing Province in the PRC on March 20, 2008 and December 23, 2008, respectively. Vantone Yuan owned 100% of the registered capital of both subsidiaries.  They each engaged in the distribution and sales of daily commodities, consumer electronics, home appliances, and also engaged in the import/export of various merchandise and technologies through a self-conducted trade model or agency arrangement in Kangping County of Shenyang District. Kang Ping Vantone Yuan filed a cancelation of registration of incorporation with KangPing County Industrial and Commercial Bureau in July 2009, effective on October 29, 2009.





Shenyang Vantone Liyuan Trading Co., Ltd. (“Liyuan”), in which Vantone Yuan had a 36.36% ownership interest from December 3, 2007 to April 24, 2008, and had a 100% ownership interest since April 24, 2008.  Because Vantone Yuan did not have majority control over Liyuan during the year ended March 31, 2008, Vantone Yuan recorded its investment in Liyuan by the equity method for the year ended March 31, 2008. However, since acquiring 100% ownership of Liyuan on April 24, 2008 (which was approved by the Industrial and Commercial Bureau in Shenyang PRC on April 30, 2008), Vantone Yuan has consolidated Liyuan’s financial results with its own.  Liyuan engaged in the distribution and sales of daily commodities, and also engaged in the import/export of various merchandise and technologies through a self-conducted trade model or agency arrangement. Liyuan filed a cancelation of registration of incorporation with Shenyang City Industrial and Commercial Bureau in August 2009, effective on October 23, 2009.





Liaoning Vantone Insurance Agent Co., Ltd. (“Vantone Insurance”), in which Vantone Yuan acquired a 78% ownership interest on November 16, 2007.  On June 8, 2009 Vantone Yuan purchased a 10% ownership interest from the other shareholder. Therefore Vantone Yuan has held a 88% ownership interest since this change. Vantone Insurance engages in the insurance agency business, mainly representing the insurance products of New China Life Insurance Co., Ltd. ZhongYi Life Insurance Co., Ltd and Heng An Life Insurance Corporation in the Shenyang District of the PRC.





b.
History of the Parent Company


Vantone International was initially incorporated on April 20, 1966 under the laws of the State of Minnesota as Polar Homes, Inc. The Company changed its corporate name toPolar Campers, Inc. in 1968. The Company was originally formed to "build, manufacture, sell, lease, own, buy and otherwise deal with in mobile homes, campers, trailers and any other equipment which from time to time be decided upon; to own and otherwise deal with in real estate, and to do all things necessary and proper to accomplish said purposes." The Company ceased all business operations during 1973 and disposed of all assets and liabilities.





In August 1991, in anticipation of a business combination with another entity, the Company changed its corporate name to Access Plus, Inc. This business combination was unsuccessful and was abandoned in January 1992 due to lack of regulatory approval. Concurrent with the abandonment of that proposed business combination, the Company changed its corporate name to Environmental Protection Corporation.





On August 15, 2000, the Company changed its corporate name to Senior Optician Service, Inc. The Company intended to enter the specialty eyewear products business and to focus its efforts on specialty eyewear sales and services for senior citizens who are either home or facility bound. Effective March 31, 2003, this business plan was suspended by management.





On August 31, 2007, the Company changed its corporate domicile from the State of Minnesota to the State of Nevada. The capital structure of the Company remained unchanged. The change of domicile was implemented by the formation of a new Nevada corporation named Senior Optician Service, Inc. which was formed on June 25, 2007. The Minnesota Senior Optician Service, Inc. was merged into and with the Nevada Senior Optician Service, Inc. corporation. The Minnesota corporation disappeared August 31, 2007 following the completion of the merger.





On April 7, 2008 Mr. Honggang Yu purchased 5,175,000 shares of the Company’s common stock, representing 86.9% of the outstanding shares.   The shares were purchased from Gregory M. Wilson and Kaniksu Financial Service, Inc.





3.
Basis of Presentation


8





a.
Fiscal Year





The Company’s fiscal year ends on March 31. The accompanying unaudited consolidated financial statements of operations and cash flows included activities for the six months ended September 30, 2010 and 2009, respectively.





b.
Principle of Consolidation





The accompanying unaudited consolidated financial statements present the financial position, results of operations and cash flows of the Company and all entities in which the Company has a controlling voting interest. The unaudited consolidated financial statements also include the accounts of any variable interest entities in which the Company is considered to be the primary beneficiary and such entities are required to be consolidated in accordance with accounting principles generally accepted in the United States (“US GAAP”). These unaudited consolidated financial statements include the financial statements of Vantone International, Vantone USA, Vantone Manufacturing, and Vantone Manufacturing’s variable interest entities. All significant intercompany transactions and balances are eliminated in consolidation.





The accompanying consolidated financial statements are prepared in accordance with US GAAP. This basis of accounting differs from that used in the statutory accounts of some of the Company’s subsidiaries, which were prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises with foreign investment in the PRC (“PRC GAAP”). Necessary adjustments made to the subsidiary statutory accounts to conform to US GAAP were included in these consolidated financial statements.





4.
Summary of Significant Accounting Policies





a.
Use of Estimates





The preparation of  unaudited consolidated financial statements in conformity with accounting principles generally accepted in United States requires management to make estimates and assumptions that affect the amount reported in the consolidated financial statements and the accompany notes. Actual results could differ from those estimates.





b.
Foreign Currency Translation





The accompanying unaudited consolidated financial statements are presented in United States dollars. The Company’s functional currency is the Renminbi (“RMB”). The consolidated financial statements are translated to U.S. dollars using year-end rates of exchange for assets and liabilities, average rates of exchange for the period for revenues, costs, and expenses, and historical capital contribution rate of exchange for capital contribution. Net gains and losses resulting from foreign exchange transactions are included in the statements of operations.





The following rates are used in translating the RMB to the U.S. Dollar presentation disclosed in these unaudited consolidated financial statements for the six months ended September 30, 2010 and 2009, respectively.





For The Fiscal Six Months Ended September 30,2010

2009Assets and liabilities

period ended rate of RMB

¥         6.6912
/per USD
¥             6.8263
/per USDRevenue and expenses
average rate of RMB

¥         6.7965
/per USD
¥             6.8305
/per USD


9


c.
Revenue Recognition


Revenue includes sales of products, services rendered, and membership fees collected. Products revenue represents the invoiced value of goods sold recognized upon the delivery of goods to customers, net of allowance for estimated returns, when both title and risk of loss transfer to the customer, provided that no significant obligations remain. Deferred revenue represents the undelivered portion of invoiced value of goods sold to customers. Service income, which is commission income from the sale of insurance contracts, is recognized when the customer is bound to the contract after completion of any rescission period offered by the insurance underwriter. Sales transactions not meeting all the conditions of the full accrual method are accounted for using the deposit method of accounting. Under the deposit method, all costs are capitalized as incurred, and payments received from the buyer are recorded as customer deposits. Revenue is represented net of value added taxes (“VAT”) for the sales revenue from PRC subsidiaries.





The revenues from service provided to and/or membership fees collected from E-commerce members were recognized base on the service and/or membership contract terms.





d.
Income Taxes


Vantone International and Vantone USA file federal consolidated income taxes. The Company’s PRC subsidiary, Vantone Manufacturing, files income tax returns under the Income Tax Law of the People's Republic of China concerning Foreign Investment Enterprises and Foreign Enterprises and local income tax laws. Vantone Yuan and its subsidiaries file income tax returns under the Income Tax Law of the People's Republic of China.





The Company follows the FASB issued ASC740 - Accounting for Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred taxes also are recognized for operating losses that are available to offset future income taxes.





The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, (“FIN 48”), codified in FASB ASC Topic 740, on January 1, 2007. As a result of the implementation of FIN 48, the Company made a comprehensive review of its portfolio of tax positions in accordance with recognition standards established by FIN 48, and the Company recognized no material adjustments to liabilities or stockholders’ equity. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.  Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income. The adoption of FIN 48 did not have a material impact on the Company’s financial statements.   At September 30, and March 31, 2010, the Company did not take any uncertain positions that would necessitate recording of tax related liability.


10


e. Non-Controlling Interests





Effective April 1, 2009, the Company adopted FASB ASC Topic 810, “Consolidation,” which established new standards governing the accounting for and reporting of noncontrolling interests (NCIs) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCIs (previously referred to as minority interests) be treated as a separate component of equity, not as a liability (as was previously the case), that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such allocation might result in a deficit balance.





The net income (loss) attributed to the NCI was separately designated in the accompanying statements of operations and comprehensive income. Losses attributable to the NCI in a subsidiary may exceed the NCI’s interests in the subsidiary’s equity. The excess attributable to the NCI is attributed to those interests. The NCI shall continue to be attributed its share of losses even if that attribution results in a deficit NCI balance.








f.
Segment Reporting


ASC 280, Disclosure about Segments of an Enterprise and Related Information, requires disclosure of reportable segments used by management for making operating decisions and assessing performance. Reportable segments are categorized by products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. ASC 280 has effect on the Company’s financial statements. The Company generated three categories of revenues: products sold, commission received for insurance agency business, and membership fees collected from members. See segment reporting spreadsheet on Note 12.





g.     Recent Accounting Pronouncements





In April 2010, the FASB issued Accounting Standard Update 20-10-17, “Revenue Recognition—Milestone Method (Topic 605): Milestone Method of Revenue Recognition” orASU 2010-17.This update provides guidance on the recognition of revenue under the milestone method, which allows a vendor to adopt an accounting policy to recognize all of the arrangement consideration that is contingent on the achievement of a substantive milestone (milestone consideration) in the period the milestone is achieved. The pronouncement is effective on a prospective basis for milestones achieved in fiscal years and interim periods within those years, beginning on or after June 15, 2010. The adoption of this ASU does not have a material impact on the Company’s consolidated financial statements.




In April 2010, the FASB issued Accounting Standards Update 2010-13, “Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades,” or ASU 2010-13. ASU 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated financial statements.




11


In March 2010, the FASB issued ASU No. 2010-11 –Scope Exception Related to Embedded Credit Derivatives. Embedded credit-derivative features related only to the transfer of credit risk in the form of subordination of one financial instrument to another are not subject to potential bifurcation and separate accounting, as clarified by recently issued FASB guidance. Other embedded credit-derivative features are required to be analyzed to determine whether they must be accounted for separately. This update provides guidance on whether embedded credit-derivative features in financial instruments issued by structures such as collateralized debt obligations (CDOs) and synthetic CDOs are subject to bifurcation and separate accounting. The guidance is effective at the beginning of a company’s first fiscal quarter beginning after June 15, 2010. The Company does not expect the adoption of this ASU to have a material impact on the Company’s consolidated financial statements.




In March 2010, the FASB issued ASU No. 2010-10 –Amendments for Certain Investment Funds. This update defers the effective date of the amendments to the consolidation requirements made by FASB Statement 167 to a reporting entity’s interest in certain types of entities. The deferral will mainly impact the evaluation of reporting enterprises’ interests in mutual funds, private equity funds, hedge funds, real estate investment entities that measure their investment at fair value, real estate investment trusts, and venture capital funds. The ASU also clarifies guidance in Statement 167 that addresses whether fee arrangements represent a variable interest for all service providers and decision makers. The ASU is effective for interim and annual reporting periods in fiscal years beginning after November 15, 2009. The adoption of this ASU does not have a material impact on the Company’s consolidated financial statements.




On February 25, 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-09 Subsequent Events Topic 855, “Amendments to Certain Recognition and Disclosure Requirements,” effective immediately. The amendments in the ASU remove the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of US GAAP. The FASB believes these amendments remove potential conflicts with the SEC’s literature. Subsequent events have been evaluated through the date the financial statements were issued.





5.
Inventories


Inventories as of September 30, 2010 and March 31, 2010 consisted of the following:





September 30, 2010


March 31, 2010(Unaudited)


(Audited)Raw materials

$
61,745


$
47,859Finished goods


274,304



93,093Total

$
336,049


$
140,952





6.
Advanced to Stockholders/ Officers, Net





Amounts advanced to stockholders/officers are unsecured, non-interest bearing, and have no set repayment date. As of September 30, 2010 and March 31, 2010, the total net amounts of advanced to the stockholders/officers were $2,399,922 and $2,367,998, respectively. This represented the net amounts lent by the Company to stockholders/officers. All advances to Mr. Honggang Yu occurred before May 14, 2009, the “Share Exchange” date.





September 30, 2010


March 31, 2010(Unaudited)


(Audited)Mr. Honggang Yu

$
2,399,922


$
2,367,998Total

$
2,399,922


$
2,367,998





12





7.
Property and Equipment – Net





Property and equipment, less accumulated depreciation, consisted of the following:








Estimated


September 30, 2010


March 31, 2010Life


(Unaudited)


(Audited)Buildings



20


$
3,223,832


$
3,167,522Vehicles



3-5



196,730



178,197Equipments and office furniture


5



82,580



72,571Software



3



43,592



42,658Subtotal






3,546,734



3,460,948Less: accumulated depreciation






484,344



391,586Total





$
3,062,390


$
3,069,362





Depreciation expenses charged to operations were $83,939 and $79,806 for the six months ended September 30, 2010 and 2009, respectively.





8.
Taxationa.
Corporation Income Tax (“CIT”)





Vantone International and Vantone USA file federal consolidated income tax returns. Vantone Manufacturing and its Kang Ping branch file income tax returns under the Income Tax Law of the PRC concerning Foreign Investment Enterprises and Foreign Enterprises and local income tax laws. Vantone Yuan and its subsidiaries file income tax returns under the Income Tax Law of the PRC concerning China Private Enterprises and local income tax laws.





In accordance with the relevant PRC tax laws and regulations, Vantone Manufacturing is subject to CIT at 27% and 25% tax rate before, on and after January 1, 2008, respectively. However, on April 14, 2010, in accordance with the relevant tax laws and regulations of the PRC, Vantone Manufacturing was approved by PRC Tax Authority, and is entitled to full exemption from CIT for two years starting from January 1, 2008, and a 50% reduction in CIT for the next three years, As a result, Vantone Manufacturing was entitled to a full exemption from CIT for the years 2008 and 2009. Commencing from January 2010, Vantone Manufacturing began to be charged CIT at a12.5% rate, half of regular CIT rate 25%.





On June 22 and August 31, 2010. Vantone Manufacturing’s KangPing branch was approved for cancellation of national and local tax registration by Liaoning Kangping National and Local Tax Bureau.





Vantone Yuan and its subsidiaries are subject to CIT at 33% and 25% tax rate before, on and after January 1, 2008, respectively. However, Vantone Yuan had been exempted from CIT for a period from April 12, 2007 to December 31, 2007 by Shenyang City Heping Region National Tax Authority. Commencing from April 1, 2009, Kang Ping became a general VAT tax payer in PRC, a general VAT tax rate of 17% is applicable.





The net deferred tax assets, current and noncurrent, in the accompanying balance sheet were $174,909 and $123,101 as of September 30 and March 31, 2010, respectively. There were no deferred tax liabilities as of September 30, 2010 and March 31, 2010. Valuation allowances were none for the fiscal six months ended September 30, 2010 and 2009. The deferred tax assets primary resulted from tax credit carry forward.


13





The components of income tax benefits related to continuing operations were as follows:





For The Fiscal Six Months Ended September 30,2010


2009Unaudited


UnauditedCurrent

$
244,985


$
307,636Deferred income tax benefits


(48,565
)


(67,769
)Total

$
196,420


$
239,867


The following is a reconciliation of the statutory tax rate to the effective tax rate for the six months ended September 30, 2010 and 2009:





For The Fiscal Six Months Ended September 30,2010


2009Unaudited


UnauditedU.S. statutory corporate income tax rate


34
%


34
%PRC tax rate difference


-9
%


-9
%Net effect of tax exmption/non-taxable income/non-deductible expenses


-7
%


8
%Effective tax rate


18
%


33
%


The tax effect of temporary differences that give rise to the Company’s deferred tax assets as of September 30, 2010 and March 31, 2010 were as follows:




September 30, 2010


March 31, 2010(Unaudited)


(Audited)Deferred income taxes assets :Loss carryforward

$
174,909


$
123,101Total deferred income taxes assets - current

$
174,909


$
123,101


b.
Value Added Tax (“VAT”)





Vantone Manufacturing and Vantone Yuan’s subsidiaries are subject to VAT on merchandise sales in PRC. Since Vantone Manufacturing engages in the manufacture and processing business, a small scale VAT rate of 6% was applicable before January 1, 2009. For Vantone Yuan’s subsidiaries whichever engage in distribution and sales of daily commodities, a small scale VAT rate of 4% was applicable prior to January 1, 2009  According to China VAT regulations, commencing from January 1, 2009, all small scale VAT rates have been changed to 3%. On July 1, 2009, Vantone Manufacturing becomes a general taxpayer and the tax rate was changed from 3% to 17%.





Kang Ping is subject to VAT on merchandise sales in the PRC. A small scale VAT rate of 4% was applicable prior to January 1, 2009, a rate of 3% was applicable after January 1, 2009, and a general VAT rate of 17% is applicable for the merchandise sales on and after April 1, 2009, since its sales amount within one year had achieved a level which subject to general VAT rate of 17%.





Vantone Yuan is also subject to VAT on merchandise sales in the PRC. A small scale VAT rate of 4% was applicable prior to February 1, 2008, and a general VAT rate of 17% was applicable for the merchandise sales on and after February 1, 2008, respectively


14





c.
Business Tax (“BT”)





The Company is also subject to business tax, which is charged on the service income at a rate of 5% in accordance with the tax law in Liaoning Province of PRC.





d.
Taxes Payable





As of September 30, 2010 and March 31, 2010, taxes payable consisted of the following:





September 30, 2010


March 31, 2010(Unaudited)


(Audited)Value-added taxes

$
253,243


$
190,573Corporate income tax provision


367,271



118,537Business taxes


(34,249
)


226Individual income tax withholdings


12



14City construction, education, and other taxes


27,701



3,208Total

$
613,978


$
312,558








9.
Operating Lease Commitments





The Company leases certain office spaces under operating lease agreements. The rental expenses under operating leases were $18,247 and $12,730 for the six months ended September 30, 2010 and 2009, respectively. The following is a schedule of future minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms beyond September 30, 2010.





For The Fiscal Six Months Ending September 30,

Amount2011

$
35,7352012


34,8312013


5,834Total minimum rental payments required

$
76,400





10.
Stockholder’s Equitya.
Common Stock





The Company is authorized to issue 100,000,000 shares of Common Stock, $0.001 par value per share, of which 30,001,000 shares are outstanding and issued.





Before the Share Exchange with Vantone USA, Vantone International (formerly “Senior Optician”) had 5,954,000 shares of common stock issued and outstanding.


15


In exchange for the outstanding shares of Vantone USA, Vantone International issued 23,947,000 shares of its common stock to the shareholders of Vantone USA (the “Share Exchange”). Those shares represent 80.1 % of the outstanding shares of Vantone International 19,157,600 of the shares were issued to Honggang Yu, although he immediately assigned 14,368,200 of them to other shareholders for whom he served as nominee. Honggang Yu is the Chief Executive Officer of Vantone USA, as well as the Chief Executive Officer of Vantone International. The remaining 4,789,400 shares were issued to Jichun Li, the Chief Financial Officer of Vantone International, although he immediately assigned 3,831,520 of them to other shareholders for whom he serves as nominee.  As a result of these transactions, persons associated with Vantone now own securities that represent 97.4% of the equity in Vantone International.





In March 2008 the Company and Gregory M. Wilson agreed to exchange a common stock warrant for 800,000 shares issued to Mr. Wilson on March 31, 2006 for a new common stock purchase warrant (the “Wilson Warrant”).  The Wilson Warrant permitted Mr. Wilson to purchase 800,000 shares of the Company’s common stock for a price equal to the lesser of (a) fifty percent of the lowest closing bid price quoted between March 31, 2006 and the exercise date or (b) $0.021⁄2.  The Wilson Warrant could be exercised by payment in cash of the exercise price or by a cashless exercise procedure.  In lieu of exercise, either Mr. Wilson or the Company could cause the Wilson Warrant to be exchanged for shares of the Company’s common stock, except that the Company could not cause the exchange to occur until it had filed an 8-K reporting that it has ceased to be a shell company.  The number of shares issuable in exchange for the Wilson Warrant would be the greater of (a) 100,000 or (b) 0.33% of the outstanding shares, and the foregoing ratio shall not be affected by any reverse split of the Company’s common.





On May 24, 2010, the Company issued 100,000 common shares in exchange for the Wilson Warrant.





The following table presents warrant actively through September 30, 2010:





Warrants


Weighted Average


Average Remaining


Aggregate IntrinsicOutstanding


Exercise Price


Life in years


ValueOutstanding, April 1, 2010


100,000


$
-



-


$
-Granted


-



-



-



-Forfeited


-



-



-



-Exercised


100,000



-



-



-Outstanding, September 30, 2010


-


$
-



-


$
-








The Wilson Warrant was valued using the Black Scholes option model, and recorded as deferred compensation in the equity section.  The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options and warrants, which do not have vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility.  Because the Company's stock warrants have characteristics significantly different from those of traded warrants, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models may not necessarily provide a reliable single measure of the fair value of its warrants.





Upon completion of the Share Exchange and warrant exchange, there were 30,001,000 shares of the Company’s common stock issued and outstanding.


16





b.
Additional Paid-In Capital





The additional paid-in capital represents the excess of the aggregate fair value of the capital contributed over the par value of the stock issued. There was $1,919, 800 and $1,887,100 additional paid-in capital as of September 30, 2010 and March 31, 2010, respectively.





e.
Dividends and Reserves





Under the regulations and laws of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following: (i) cumulative prior years' losses, if any; (ii) allocations to the "Statutory Surplus Reserve" of at least 10% of net income after taxes, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company's registered capital; and (iii) allocations to any discretionary surplus reserve, if approved by shareholders.





The Company has not accrued "discretionary surplus reserve”, since it had not been approved by the shareholders of the Company.





The Company established and segregated in retained earnings an aggregate amount of $794,271 and $724,764 for the Statutory Surplus Reserve as of September 30, 2010 and March 31, 2010, respectively.





11.
Proxy Agreement, Entrusted Management Agreement, and Purchase Option and Cooperation Agreement





Effective as of April 1, 2007, Vantone Manufacturing entered into three agreements with Vantone Yuan and/or the shareholders of Vantone Yuan:  the Entrusted Management Agreement, the Proxy Agreement, and the Purchase Option and Cooperation Agreement.  Summaries of the agreements follow:





Proxy Agreement:    In this agreement, the shareholders of Vantone Yuan assigned to Vantone Manufacturing their voting rights and all other shareholders rights, including the right to attend and vote such shares at any shareholder’s meeting of the Company (or by written consent in lieu of a meeting) without any limitations. The effective term of this agreement shall be ten (10) years and may be extended by the written agreement among the parties upon the expiration of this agreement.





Entrusted Management Agreement:  In this agreement, the shareholders of Vantone Yuan entrusted Vantone Manufacturing to manage all assets and debts of Vantone Yuan. The term of this Entrusted Management Agreement shall be from April 1, 2007 to the earlier of the following:





1)
March 31, 2017, or





2)
the winding up of Vantone Yuan, or





3)
the termination date of this Entrusted Management Agreement to be determined by the parties, or





4)
the date on which Vantone Manufacturing completes the acquisition of Vantone Yuan.





In exchange for the services of Vantone Manufacturing pursuant to this Entrusted Management Agreement, Vantone Yuan and its shareholders shall pay an entrusted management fee to Vantone Manufacturing. The entrusted management fee shall equal Vantone Yuan’s net profits, being the monthly revenues after deduction of operating costs, expenses, and taxes. If the net profit is zero, Vantone Yuan is not required to pay the entrusted management fee; if Vantone Yuan sustains losses, all such losses will be carried over to next month and deducted from next month's entrusted management fee.  Vantone Manufacturing and Vantone Yuan shall calculate, and Vantone Yuan and its shareholders shall pay, the monthly entrusted management fee at the conclusion of each month.





In addition, Vantone Manufacturing shall assume all operation risks arising out of the operations of Vantone Yuan and bear all losses of Vantone Yuan. If Vantone Yuan does not have sufficient funds to repay its debts, Vantone Manufacturing is responsible for paying these debts on behalf of Vantone Yuan. If Vantone Yuan's net assets are lower than its registered capital, Vantone Manufacturing is responsible for funding the deficit.


17


Purchase Option and Cooperation Agreement:  In this agreement, the  shareholders of Vantone Yuan granted to  Vantone Manufacturing the exclusive option to acquire, at any time upon satisfaction of the requirements under the PRC law, the entire or a portion of all shareholders’ shares of equity or/assets owned by Vantone Yuan.





By reason of these three agreements, Vantone Manufacturing is considered to be the primary beneficiary of Vantone Yuan and its subsidiaries. Vantone Yuan and its subsidiaries are considered to be the variable interest entities of Vantone Manufacturing. Since Vantone International is the 100% equity owner of Vantone Manufacturing,   Vantone Manufacturing and Vantone Manufacturing’s variable interest entities shall be required to be consolidated into the Company’s financial statements in accordance with accounting principles generally accepted in the United States (“US GAAP”).








12.
Segment Reporting





The Company engages in two types of business activities: daily commodities (including healthcare and beauty products, feminine hygiene products) sales and insurance agency service. In addition, the Company collects the membership and network service fees from the members who would like to sell the Company’s daily commodities and joint the Company as one of its insurance agent. The chief operating decision makers evaluate performance, make operating decisions, and allocate resources based on the separated type of business financial data. Gross profit, operating income, income from operations, and income taxes are allocated to specific business activities within the organization. In accordance with ASC 280 “Disclosures about Segments of an Enterprise and Related Information” the Company is considered to have two reportable segments. The Company is required to disclose certain information about profit or loss, total assets and liabilities, geographic areas, regulatory environments, major customers, and long-lived assets. Following is a summary of segment information for the six months ended September 30, 2010 and 2009:





For The Fiscal Six Months Ended September 30, 2010Products Sold


Insurance Agencyand Related Service


Related Service


TotalTotal assets

$
15,940,357


$
701,659


$
16,642,015Total long - lived assets, net

$
2,561,147


$
501,243


$
3,062,390Total liabilities

$
1,799,188


$
116,940


$
1,916,128Revenue from products sold

$
1,563,440


$
-


$
1,563,440Revenue from service rendered

$
-


$
18,436


$
18,436Membership fees collected

$
261,059


$
-


$
261,059Network service fees

$
-


$
1,008


$
1,008Income (loss) from operations

$
1,179,261


$
(91,922
)

$
1,087,339Depreciation expenses

$
67,599


$
16,341


$
83,939Interest revenue

$
5,584


$
160


$
5,744Noncontrolling interest

$
-


$
(7,452
)

$
(7,452
)Income tax expenses (benefits)

$
226,181


$
(29,761
)

$
196,420


18





For Fiscal Six Months Ended September 30, 2009Products Sold


Insurance Agencyand Related Service


Related Service


TotalTotal assets

$
8,668,373


$
815,063


$
9,483,436Total long - lived assets, net

$
2,621,090


$
519,889


$
3,140,979Total liabilities

$
789,125


$
123,888


$
913,013Total revenue

$
3,928,788


$
246,032


$
4,174,820Income (loss) from operations

$
808,782


$
(90,260
)

$
718,522Depreciation expenses

$
64,173


$
15,633


$
79,806Interest revenue

$
10,640


$
296


$
10,936Interest expenses

$
7,496


$
-


$
7,496Noncontrolling interest

$
-


$
(10,224
)

$
(10,224
)Income tax expenses (benefits)

$
262,111


$
(22,244
)

$
239,867








13.Geographical Risks





Substantially all of the Company's operations are carried out in the PRC. Accordingly, the Company's business is subject to considerations and risks atypical to those in the United States, including changes in the political, economic, social, legal, and tax environments in PRC, as well as changes in inflation and interest rates. Changes in laws and regulations concerning PRC’s purchases and sales of daily commodities, consumer electronics, home appliances, and insurance agency business could significantly affect the Company’s future operating results and financial position.








14.
Concentration of Business





a.      Major Customers





The following summarizes products sold to major customers (each 10% or more of total products sold):





For Fiscal Six Months

Sold to Major

Number of

Percentage ofEnded September 30,

Customers

Customers

Total Products Sold2010

$         532,488

2

34.06%2009

$       1,077,009

2

27.43%








The following summarizes insurance agency service fees received from major insurance company (each 10% or more of total insurance agency service fees received):





For Fiscal Six Months

Revenue from

Number of
Percentage ofEnded September 30,

Major Insurance Co.

Insurance Co.

Total Service Rendered2010

$            18,436

3

100.00%2009

$             234,144

1

95.17%


19
  b.           Major Suppliers





The following summarizes raw materials and products purchased from major suppliers (each 10% or more of total raw material and products purchased):





Purchased from

Number of

Percentage ofFor Fiscal Six Months Ended September 30,

Major Suppliers

Suppliers

Total Purchased2010

$            749,700

5

98.25%2009

$          1,085,234

3

47.77%





15.
Subsequent Events





On October 12, 2010, Vantone Yuan had made its cash contribution of RMB20 million (equivalent to $2,996,978 as of October 12, 2010) into Vantone Small Financing. In exchange for this contribution, the equity in Vantone Small Financing was allocated 29.3% to Vantone Yuan.





Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.





In addition to historical information, this Quarterly Report contains forward-looking statements, which are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects,” or similar expressions. These forward-looking statements represent Management’s belief as to the future of Vantone International Group, Inc.  Whether those beliefs become reality will depend on many factors that are not under Management’s control.  Many risks and uncertainties exist that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled “Risk Factors” contained in the Company’s Annual Report on Form 10-K for the year ended March 31, 2010. Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.





Result of Operation





During our fiscal years ended March 31, 2010 and 2009, we were engaged in the sale of a variety of products through sales agents located in dedicated stores. In April 2010, we cancelled our sales agency agreements, and established an insurance B2C e-commerce trade platform named “Vantone Insurance Online Shop” (“Vantone Shop”). In the Vantone Shop we provide insurance agency services. We also distribute many of the same commodities (including healthcare and beauty products, feminine hygiene products) that we previously marketed through the Vantone Shop. The unique feature of the Vantone Shop is that it is the first online shop to provide insurance agency service in China. In addition we have integrated our products distribution business and our insurance agency business through the Vantone Shop.  Members who make any purchase of our commodities or contract with our insurance agency, on the Vantone Shop receive reward points that can be applied to purchase any of the products exhibited on the Vantone Shop.





We offer consumers a free membership in the Vantone Shop, which permits them to use the website to obtain direct links to insurance underwriters and to purchase our daily commodities, health, and beauty products. In addition we offer VIP Memberships, which allow the VIP Members to receive reward points by purchasing our commodities for themselves or other persons. We also offer Network Service Memberships, which allow the network service members to provide insurance agency services to our common membership and/or receive reward points by purchasing our commodities for themselves or other persons. Of these revised operations, in the three months ended September 30, 2010 our Vantone Shop attracted approximately 1402 VIP Memberships and 7 Network Service Memberships, and for six months ended September 30, 2010 the Vantone Shop had 20,707 VIP Memberships and 741 Network Service Memberships.  We received RMB 7,016,780 (equivalent to $1,048,664) in the six months ended September 30, 2010 as VIP and Network Service Membership fees.


20


The VIP memberships have a one year term.  Therefore, of the RMB 6,794,480 (equivalent to $1,015,441) received from VIP members during the six months ended September 30, 2010. We recognized $261,059 in revenue for the six months ended September 30, 2010 and deferred the remainder for recognition during the remainder of the terms of the memberships.





Network Service Memberships are permanent. Therefore, we are recognizing the revenue from Network Service Memberships over a term that ends on the expiration date of the operations of Kang Ping Vantone. During the six month ended September 30, 2010 subscribers to the Network Service Memberships paid  RMB222,300 (equivalent to $33,233) in membership fees, of which we recognized $1,008 as revenue for the six months ended September 30, 2010 and deferred the remainder for recognition over the remaining life of Kang Ping Vantone.





The VIP and Network Service Memberships fees accounted for nearly 2% and 14% of our sales revenue for the three months and the six months ended September 30, 2010.  During that period, our revenue from the sale of products (identified as “products sold” on our statements of operations) fell from $2,011,508 in the three months ended September 30, 2009 to $1,497,448 (97% of total revenue). And our revenue from the sale of products fell from $3,927,031 in the six months ended September 30, 2009 to $1,563,440 (85% of total revenue). This occurred because we cancelled our traditional sales agent operation model and established “Vantone Insurance Online Shop” (“Vantone Shop”) in April 2010. Vantone started to distribute commodities on the Vantone Shop from June 2010. As a result,  our net revenue decrease to $1,541,752 for the three months ended September 30, 2010 from $2,101,446 for the three months ended September 30, 2009, and our revenue decrease to $1,843,943 for six months ended September 30, 2010 from $4,174,820 for the six months ended September 30, 2009.




Likewise, although we established Vantone Shop for the sale of insurance products, our insurance business remains insignificant.   For the three months ended September 30, 2010, our revenue from the sale of insurance policies (identified as “service rendered” on our Statements of Operations) fell from $89,938 to $9,562(1% of total revenue). For the six months ended September 30, 2010, our revenue from the sale of insurance policies fell from $246,032 to $18,436 (1% of total revenue). The primary reason for the lack of vitality in our insurance business was that we focused on initiating the Vantone Insurance B2C Network as our point of entry into the national insurance market.  The complexity of developing this mode of insurance marketing, which is new to China, delayed the expansion of our insurance business. At present we are uncertain of the future development of our insurance business, although we expect that over the long term it will grow into a significant factor in our overall revenue.





Our gross margin during the three months ended September 30, 2010 was 63% compared to 34% in the three months ended September 30, 2009,  during the six months ended September 30, 2010 was 67% compared to 38% in the six months ended September 30, 2009.  Gross margin was very high, because there was little cost involved in acquiring the VIP and Network Service Memberships fees. In addition, Due to the significant recent changes in our business operations, the new products which we distribute on our Vantone shop involve low cost and high gross margin, and the products sales revenue constituted 97% and 85% of our revenue for the three months and six months ended September 30, 2010 and 2009, respectively.





Our selling, general and administrative expenses in the three months ended September 30, 2010 were 41% lower than in the three months ended September 30, 2009. Similarly, in the six months ended September 30, 2010 were 44% lower than in the six months ended September 30, 2009. Selling expenses were immaterial in the recent two quarters, and due to the absence of sales personnel which were 96% and 97% lower than in the three months and the six months ended September 30, 2009 respectively. General and administrative expenses were 19% and 28% lower than in the three months and six months ended September 30, 2009 respectively. And we were able to reverse a bad debt expense of $256,882 and $347,723 in the three months and six months ended September 30, 2010, respectively, taken in a prior period when we collected the receivable against which we had reserved.


21


Due to the high gross margin and low operating expenses that we incurred in the three months ended September 30, 2010 our net income before taxes and provision for noncontrolling interest increased by 227% from $991,349 to $303,259 compared three months ended September 30, 2009. After deducting net loss attributable to the noncontolling interest and calculating the provision for income taxes, based on the Chinese national corporate tax rates, our net income for the three months ended September 30, 2010 was $840,225 ($.03 per share), compared to $210,119 ($.01per share) in the three months ended September 30, 2009.
 
 In the six months ended September 30, 2010 our net income before taxes and provision for noncontrolling interest increased by 53% from $716,698 to $1,092,973 compared six months ended September 30, 2009. After deducting net loss attributable to the noncontolling interest and calculating the provision for income taxes, based on the Chinese national corporate tax rates, our net income for the six months ended September 30, 2010 was $904,005 ($.03 per share), compared to $478,055($.02 per share) in the six months ended September 30, 2009.





Our business operates primarily in Chinese Renminbi (“RMB”), but we report our results in our SEC filings in U.S. Dollars.  The conversion of our accounts from RMB to Dollars will result in translation adjustments.  While our net income will be added to the retained earnings on our balance sheet; the translation adjustments will be added to a line item on our balance sheet labeled “accumulated other comprehensive income,” since they will be more reflective of changes in the relative values of U.S. and Chinese currencies than of the success of our business.  During the six months ended September 30, 2010, the effect of converting our financial results to Dollars was to add $268,294 to our accumulated other comprehensive income.  In the six months ended September 30, 2009, $7,735 was added to our accumulated other comprehensive income.





Liquidity and Capital Resources





After our shareholders made the initial contribution of our registered capital, the growth of our business has been funded, primarily, by the revenues resulted from our business operations.





Our working capital on September 30, 2010 totaled $11,691,264, an increase of $1,199,586 from our $10,491,678 in working capital as of March 31, 2010. The increase was approximately equal to our net income.  Our cash flow from operations exceeded net income, however, as operations in the six months ended September 30, 2010 produced $4,173,818 in cash.  The excess over net income was primarily the result of our collection of accounts receivable and our receipt of VIP membership fees that we have accounted for as deferred revenue.





Our business plans contemplates that we will expand our current VIP and Network Service members, increase our service infrastructure, and expand our e-commerce platform to distribute daily commodities, beauty and healthcare products, consumer electronics, home appliances, and insurance products.  Implementation of this plan will require significant funds.  The funds are needed in order to:





●
Implement our direct marketing program, including development of internet commerce, calling center and an online presence;





●
Co-operate with more insurance companies, and gain more insurance agency business;





●
Establish a small financing and mortgage company in China to financing car, property, and life insurance products to expand our insurance market possession ratio and expand e-commerce transactions volume;





●
Implement an advertising and marketing program adequate to assure us of substantial market presence.





Our plan is to sell a portion of our equity in order to obtain the necessary funds, which will reduce the equity share of our existing shareholders.  To date, however, we have received no commitment from any source for funds.


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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.





Item 3. Quantitative and Qualitative Disclosures About Market Risk.





Not applicable.





Item 4.  Controls and Procedures.





(a) Evaluation of disclosure controls and procedures.





The term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within required time periods. The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report (the “Evaluation Date”). Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer has concluded that, as of the Evaluation Date, such controls and procedures were effective.





(b) Changes in internal controls.





The term “internal control over financial reporting” (defined in SEC Rule 13a-15(f)) refers to the process of a company that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated any changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter covered by this report, and they have concluded that there was no change to the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.





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PART II   -   OTHER INFORMATION





Item 1. Legal Proceedings





We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.





Item 1A. Risk Factors





There has been no material change in the risk factors set forth in Item 1A of the Company’s Annual Report on Form 10-K for the year ended March 31, 2010.





Item 2. Unregistered Sales of Equity Securities and Use of Proceeds





We have not sold any equity securities during the three months ended September 30, 2010 that were not previously disclosed in a current report on Form 8-K that was filed during that period.





Item 3. Defaults Upon Senior Securities





None





Item 4. (Removed & Reserved)





Item 5. Other Information





There was no other information during the three months ended September 30, 2010 that was not previously disclosed in a current report on Form 8-K that was filed during that period.





Item 6. Exhibits





31.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002





32.1
Certification of Chief Executive Officer and Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002







24





SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





VANTONE INTERNATIONAL GROUP, INC.Date: November 15 , 2010
By: /s/ Honggang YuHonggang Yu, Chief Executive Officerand Chief Financial Officer