UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-K
 
 x   
Annual Report Pursuant To
Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the
fiscal year ended: December 31, 2009
 
  ̈  Transition Report under
Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the
transition period from ______ to_______
 
 Commission
File No. 000-20936
 
 Jade
Art Group Inc.
 (Exact
name of Registrant as specified in its charter)
 
 Nevada
                    71-1021813(State
      or other jurisdiction of incorporation or organization)
                    (IRS
      EmployerIdentification
      Number)
 
 #35,
Baita Zhong Road,
 Yujiang County, Jiangxi
Province, P.R. of China 335200
 (Address
of principal executive offices)
 (Zip
Code)
 
 +86-701-5881082
 (Registrant's
telephone number, including area code)
 
 Securities
registered pursuant to Section 12(b) of the Act: None
 
 Securities
registered pursuant to Section 12(g) of the Act: Common Stock, par value
$0.001
  Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
 Yes  ̈      
 No  x
 
 Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
 Yes  ̈      
 No  x
 
 Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
past 12 months (or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.  Yes  x             
No  ̈
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule405 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  ̈ No
 ̈
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  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  ̈        
Non-Accelerated Filer  ̈        
Accelerated Filer  ̈         Smaller
Reporting Company  x
 
 Indicate
by check mark whether Registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes  ̈      
 No  x
 
 As of
June 30, 2009, the aggregate market value of the shares of the Registrant’s
common stock held by non-affiliates (based upon the closing price of such shares
as reported on the Over-the-Counter Bulletin Board) was approximately
$18,126,948 . Shares of the Registrant’s common stock held by each executive
officer and Director and by each person who owns 10 percent or more of the
outstanding common stock have been excluded in that such persons may be deemed
to be affiliates of the Registrant. This determination of affiliate status is
not necessarily a conclusive determination for other purposes.
 
 There
were a total of 79,980,000 shares of the Registrant’s common stock outstanding
as of May 13, 2010.







JADE
ART GROUP INC.


FORM
10-K


For
the Fiscal Year Ended December 31, 2009




PagePART
      IItem 1.
                                                                                    Business
                                                                                    3Item 1A.
                                                                                    Risk Factors
                                                                                    7Item 2.
                                                                                    Properties
                                                                                    15Item 3.
                                                                                    Legal Proceedings
                                                                                    15Item 4.
                                                                                    Reserved
                                                                                    15PART
      IIItem 5.
                                                                                    Market for Registrant’s Common
      Equity, Related Stockholder Matters and Issuer Purchases of Equity
      Securities
                                                                                    15Item 6.
                                                                                    Selected Financial Data
                                                                                    16Item 7.
                                                                                    Management’s Discussion
      and Analysis of Financial Condition and Results of
      Operations
                                                                                    16Item 8.
                                                                                    Financial Statements and Supplementary
      Data
                                                                                    22Item 9.
                                                                                    Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosure
                                                                                    23Item 9A(T).
                                                                                    Controls and Procedures
                                                                                    23Item 9B.
                                                                                    Other Information
                                                                                    24PART
      IIIItem 10.
                                                                                    Directors, Executive Officers and Corporate
      Governance
                                                                                    24Item 11.
                                                                                    Executive Compensation
                                                                                    26Item 12.
                                                                                    Security Ownership of Certain Beneficial Owners
      and Management and Related Stockholder Matters
                                                                                    28Item 13.
                                                                                    Certain Relationships and RelatedTransactions
                                                                                    29Item 14.
                                                                                    Principal Accountant Fees and
      Services
                                                                                    29PART
      IVItem
      15.
                                                                                    Exhibits
      and Financial Statement Scedules
                                                                                    30Index
      to Consolidated Financial Statements
                                                                                    F-1




2




PART
I





Item
1. Business.





Introduction





Jade Art
Group Inc. (formerly Vella Productions, Inc.) ("the Company") is a seller and
distributor in China of raw jade, ranging in uses from decorative construction
material for both the commercial and residential markets to high-end jewelry.
For more than 30 years, the Company's business consisted of manufacturing and
selling hand and machine-carved wood products, such as furniture, architectural
accents and Buddhist figurines in China. Commencing in 2007, we experienced a
reduction of revenue from our woodcarving business, largely due to increased
competition. As a result, we decided to dispose of our wood products business
and to enter the business of raw jade sales and distribution, which management
believed presented a better long-term growth potential. On January 11, 2008, we
formed a new wholly owned Chinese subsidiary, JiangXi SheTai Jade Industrial
Company Limited, to engage in the sale and distribution of raw jade throughout
China. Our goal is to meet China's increasing demand for jade and to eventually
vertically integrate our raw jade distribution activities with jade processing,
carving, polishing and, at a later date, retail sales.





The
Company currently operates in one segment.





Our
Corporate History





The
financial statements presented are those of the Company which was incorporated
under the laws of the State of Nevada on September 30, 2005.





On
October 1, 2007, Vella Productions Inc., the former Registrant, entered into an
agreement and plan of merger with its wholly owned subsidiary, VLLA Merger Sub,
Inc., and each of Guoxi Holding Limited ("GHL"), Hua-Cai Song, Fu-Lan Chen,
Mei-Ling Chen, Chen-Qing Luo, Mei-Qing Zhang, Song-Mao Cai, Shenzhen Hua Yin
Guaranty & Investment Company Limited, Top Good International Limited, Total
Giant Group Limited, Total Shine Group Limited, Sure Believe Enterprises
Limited, Think Big Trading Limited, Huge Step Enterprises Limited and Billion
Hero Investments Limited (the "Merger Agreement"). Pursuant to the Merger
Agreement, GHL merged with VLLA Merger Sub, Inc, with GHL as the surviving
entity. As a result of the Merger Transaction, GHL became a wholly owned
subsidiary of the Company, which, in turn, made the Company the indirect owner
of the operating company subsidiary of GHL, Jiangxi XiDa (formerly known as
Jiangxi Xi Cheong Lacquer, Inc.). Under the Merger Agreement, in exchange of
surrendering their shares in GHL, the GHL Shareholders received an aggregate of
(i) 68,900,000 newly-issued shares of the Company's common stock, par value
$0.001 per share (the "Common Stock") and (ii) $14,334,500, in the form of
promissory notes payable on or before the first year anniversary of the Merger
Transaction. Consideration was to be distributed pro ratably among the GHL
Shareholders in accordance with their respective ownership interests in GHL
immediately before the completion of the Merger Transaction.





The
acquisition has been accounted for as a reverse merger and recapitalization and,
accordingly, the financial statements in this Annual Report represent the
historical operations of Jiangxi XiDa, and the capital structure of the former
Vella Productions, Inc.





On
November 8, 2007, the Company amended and restated its articles of incorporation
to reflect Jade Art Group Inc. with its new corporate name and, in early 2008,
commenced operations as a distributor and seller of raw jade sourced from the
SheTai Jade Mine owned by Wulateqianqi XiKai Mining Co., Ltd. ("XiKai Mining")
as a result of entering into an Exclusive Distribution Rights Agreement with
XiKai Mining.





The
Company's Exclusive Distribution Agreement with XiKai Mining





On
January 17, 2008, the Company entered into an Exclusive Distribution Rights
Agreement (the "Exchange Agreement") with XiKai Mining. Under the Exchange
Agreement, XiKai Mining committed to sell to the Company 90% of the raw jade
material produced from its SheTai Jade mine, located in Wulateqianqi, China, for
a period of 50 years (the "Exclusive Rights"). In exchange for these Exclusive
Rights, the Company agreed to pay XiKai Mining RMB 60 million (approximately
$8.8 million) by March 31, 2009, and, to transfer to XiKai Mining 100% of our
ownership interest in all of the Company's woodcarving operations, which were
contained in Jiangxi XiDa. This transfer of Jiangxi XiDa was made on February
20, 2008.





XiKai
Mining is the Company's sole source for raw jade. Under the Exchange Agreement,
the price for the raw jade material has been set for the first five years at RMB
2,000 (approximately $290) per metric ton, and is subsequently subject to
renegotiation every five years with adjustments not to exceed 10%.  A
chart summarizing the material terms of the Exchange Agreement is set forth
below:


3




Parties
      to the Agreement:
            (a)
      GHL and its wholly owned subsidiary Jiangxi SheTai Jade Industrial Co.,
      Ltd. ("STJ")


(b) XiKai
Mining





Exclusive
      Commitment:
            XiKai
      Mining committed to sell to the Company up to 90% of the raw jade material
      produced from the SheTai Jade mine





Term of
Agreement:            50
years





Cost
      of Agreement:
            The
      Company agreed to pay to XiKai Mining RMB 60 million (approximately $8.8
      million on the date of the agreement) by March 31, 2009. This amount was
      paid on March 1, 2008. The Company also agreed to transfer to XiKai Mining
      100% ownership of the wholly owned Jiangxi XiDa Wooden Carving Lacquerware
      Co., Ltd. The transfer was completed on February 20,
  2008.





Commitment
      to Purchase:
            If
      the Company so requests, XiKai Mining committed to provide 40,000 tons of
      annual jade production.





Minimum
      Obligation
            The
      Company is not obligated to purchase any specified amount of
      jade.





Average
      Cost / Ton:
            The
      Company's average cost will not exceed RMB 2,000 per ton (approximately
      $290 on the date of the Exchange Agreement). This cost will be
      renegotiated every five years with a maximum increase, in any, of 10% on
      each adjustment.





Failure
      to Perform:
            XiKai
      Mining must pay to the Company RMB 18,000 (approximately $2,630 at the
      date of the Exchange Agreement) for each ton below 40,000 ordered by the
      Company but not delivered.





Miscellaneous
      Terms:
            XiKai
      Mining may not sell the remaining 10% of SheTai output at less than the
      agreed upon price with the Company. The Exchange Agreement may only be
      terminated by the consent of the Company and XiKai. The agreement is
      subject to the laws of the People's Republic of China ("PRC"), where any
      dispute will be resolved through
arbitration.





Jade
From the SheTai Mine





The
SheTai Jade mine commenced operation in 2002 and is estimated to have an annual
operating capacity of approximately 25,000 tons as of December 31, 2009. It is
believed to be one of the largest jade reserves in China. According to a survey
report issued by the Inner Mongolia Geological Institution, the mine has proven
and probable reserves of approximately six million tons. The SheTai Jade mine's
reserves include some of the oldest (formed approximately 1.8 billion - 2.4
billion years ago) jade found in China and are considered to be of high quality
in terms of rigidity and relative size of its pieces.





There are
two types of jade: nephrite and jadeite. Jadeite's rarity, higher degree of
hardness and vivid colors, has made it better known and more expensive than
nephrite. The SheTai Jade mine, in the mountain ranges of Inner Mongolia, China,
contains the jadeite variety of jade. The jade from the SheTai mine is
stainless, non-corrosive, non-weathering and does not fade. In addition, SheTai
Jade is abrasion resistant, smooth and highly reflective. Observers have stated
that the green is pure and the gems are translucent, with a glassy luster.
SheTai Jade is as hard as quartz, with a degree of hardness between 7.1 and 7.3
on the Mohs scale, which is higher than that of most jade. As a result of such
characteristics, SheTai Jade has a broad spectrum of applications, ranging from
commercial and residential construction and decorative jade artwork to
intricately carved jade jewelry.





SheTai
Jade Mine is located in Inner Mongolia, China's northern border autonomous
region.





Uses
for SheTai Jade





Jade has
varied applications, ranging from jewelry to construction and furniture
manufacturing.  Asians and, predominantly, the Chinese have a long
history of jade usage in jewelry and craftwork. The Chinese tradition of using
jade and the belief that jade protects its owners from evil has made it a
popular stone. Thus, jade is valued as a commodity, and also as a good luck
charm for its owner.





Our jade
has a wide range of applications due to its unique characteristics, broadening
the potential customer base of the Company. Raw jade has the following four
major applications:





u
              As
      construction material such as tiles, mosaic, and
    cobblestone;


4





u
              In
      making sculptures and large-scale statues like Buddha figures, garden
      architecture, political leaders and corporate founder
    statues;





u
              In
      furniture and home furnishings such as lamps, countertops and
      kitchenware;





u
              In
      jewelry items. In spite of jewelry being the most recognized use of jade,
      the volume demanded in this segment is not substantial compared to
      potential commercial applications. The quantity required in jewelry
      markets is also highly
cyclical.





Raw jade,
which is used in furniture and construction materials, costs around $3 per
kilogram, while the purest form, used most commonly in jewelry after
considerable processing, has prices ranging up to $85-$100 per gram. The stone's
pricing is mainly dependent on factors like purity, color, hardness, clarity and
rarity of particular genres of the stone.





The
Company is promoting the usage of its SheTai brand jade in the construction of
high-end hotels, temples, restaurants, government and corporate buildings as
well as in home decor. The Company is also positioning SheTai Jade as an
alternative for marble and granite.





Customers
of the Company





We
commenced the distribution and sale of raw jade in February 2008. During the
quarter ended March 31, 2008, we entered into five contracts for the sale of raw
jade to customers in China. During the quarter ended June 30, 2008, the Company
entered into one additional contract with an existing customer. The Company did
not enter into any new contracts with customers in 2009. Each contract obligated
the customer to purchase a specified amount of raw jade within a specified
amount of time ranging from six to twelve months. All new contract orders in
2009 were based on verbal agreement between the Company and its
customers.





The
Company began shipments on February 1, 2008, and distributed about 7,400 tons
for the full year of 2009. As of May 1, 2010, three of our six contracts have
been completed in full. Contracts with Putian Licheng Qiyushengshi Co. ("QYSB"),
YangZhou GuoCui Jade ("YZGC"), and GuangFuGuoXiang Jade ("GFGX") remain
outstanding. We’ve stopped two of the three outstanding contracts (YZGC and
GFGX) due to their delinquent payment history. All the outstanding balances have
now been paid in full.  However, the Company does not expect that it
will fulfill these remaining contracts in the near future.





The
counterparties to these contracts are sub-distributors and processors who in
turn sell jade to the artisans responsible for crafting the final products.
There are approximately 150,000 jade-carving factories in China. The province in
which our customer, QuanZhou City TianXiaHuiCui Jade Company Ltd. (“QZTX”),
operates is home to over 1,000 large jade carving and processing factories,
generating over $1.5 billion in annual production. PuTian City, home to our
customer, QYSB, contains 1,000 jade and jewelry companies with annual production
of $2 billion.





Our
major customers include the following companies:





Customer
                          
                          Percentage
      of Company’s Revenue in 2009Shenzhen
      Hongda Artcraft Co.
                          
                          
                          21.3
                          %Quanzhou
      Tianxia Huicui Jade Co.
                          
                          
                          19.8
                          %Suzhou
      Cuiping Jade Co.
                          
                          
                          20.2
                          %Putian
      Licheng Qiyushengshi Co.
                          
                          
                          18.1
                          %Bengbu
      Huacui Jade Co.*
                          
                          
                          20.6
                          %





*Bengbu
Huacui Jade Co. has been a customer of the Company since 2008; however, it
wasn’t a major customer until 2009.


All of
our sales of SheTai Jade to date are to customers located in China. However, the
Company intends to solicit customers elsewhere in Asia.





The
Company's Jade Distribution Agreements





Our
contracts require customers to purchase specified amounts of raw jade over
periods ranging from six months to one year at times which are at the discretion
of the customer. Xikai Mining mines the raw jade and prepares it for pick-up by
the Company's customers at a warehouse which Xikai Mining maintains near its
SheTai Jade mine. The customer is responsible for the shipment of the jade,
including the cost of shipment.





The
customers inspect the jade after delivery and make a determination as to whether
to accept such jade. Jade can only be returned to the Company in the event that
there are issues related to its quality. No customer has ever returned jade to
the Company due to quality issues or for any other reasons.


5





Our
contracts for the sale of raw jade generally provide that the Company will
receive 30% of the contracted value of the order before shipment. The balance is
then due after shipment, within 10 days after customer's inspection and
acceptance of the jade. However, the Company's customers generally have,
instead, paid the balance within 45 days after shipment.





The
table below summarizes details regarding the Company's sales in 2009 with the
following customers (i) Suzhou Cuiping Jade Company Ltd. (“SCJC”), (ii) ShenZhen
HongDa Craftwork Ltd. (“SZHD”), (iii) QuanZhou City TianXiaHuiCui Jade Company
Ltd. (“QZTX”), (iv) PuTian City LiCheng District, QiYuShengShiBao Jade Company
Ltd. (“QYSB”), and (v) BengBu City Huacui Jade Co. (“BBCH”).





Customer
                              
                              Tonnage
                              
                              AmountSuzhou
      Cuiping Jade Company Ltd.
                              
                              
                              1,532.50
                              
                              36,064,801
      RMBShenZhen
      HongDa Craftwork Company Ltd.
                              
                              
                              1,635.28
                              
                              38,517,987
      RMBQuanZhou
      City TianXiaHuiCui Jade Company Ltd.
                              
                              
                              1,534.01
                              
                              36,002,534
      RMBPuTian
      City LiCheng District, QiYuShengShiBao Jade Company Ltd.
                              
                              
                              1,494.29
                              
                              34,824,563
      RMBBengbu
      City Huacui Jade Co.
                              
                              
                              1,166.51
                              
                              27,490,628
      RMB





Business
and Marketing Strategy





The
Company currently employs sales personnel to market its jade to potential
customers throughout China. We market our jade based on its quality and special
characteristics which allow it to be used for varied purposes including as
construction materials.





Competition





The
Chinese jade industry is spread among a large number of companies. Our primary
competitors are Zheng Dong Jade Co., Xin Jiang Lao Shan, He Tian Jade Co. and
Leung Jade Co., Ltd. The industry is highly fragmented and consists of mostly
private companies, making detailed information difficult to determine. We also
compete generally with distributors of other construction materials and
gemstones throughout China.





We
compete directly with other distributors of jade on the basis of quality and
price. We compete with distributors of other materials such as marble and quartz
on the basis of the unique characteristics of SheTai jade (e.g. color, hardness,
durability and beauty) and also on price.





Order
Backlog





We
do not maintain any inventory. XiKai Mining maintains an inventory of raw jade
in its warehouse, and fills our orders promptly after receipt. Accordingly we do
not have an order backlog.





Seasonality





The
Company is generally not affected by seasonality. The only seasonal affect on
our business could be a delay of shipments from the SheTai Mine in the winter if
the road leading from the mine becomes inoperable due to extremely heavy rains
or snow.





Intellectual
Property





Except
for certain trade secrets and unregistered trade names, the Company currently
has no trademarks, copyrights, patents or other intellectual
property.





Research
and Development





The
Company has incurred no costs related to research and development over the last
three years.





Employees





The
Company has approximately 35 full time employees, including 25 who work in sales
and five in administration. We believe that relations with our employees are
good. There are total of five employees who are at the mine monitoring and
supervising the process of transporting the goods such as weight, size, and
quality.


6





1A.
Risk Factors.





The
following are risks associated with our Company and business operations. If any
of these risks were to develop into actual events, our business, financial
condition or results of operations could be materially adversely affected and
the trading price of our common stock could decline significantly. Our business
activities are subject to various risks and uncertainties, including the
following:





Risks
Related to the Company Business and Industry





Senior
management had not operated in any aspect of the jade industry before February,
2008, and there is no guarantee that we will be able to do so
successfully.





Our
senior management had no operating history in the jade industry prior to
February, 2008 and thus any evaluation of our business and prospects in the jade
industry should take that into consideration. Accordingly, the likelihood of our
success must be considered in the light of the problems, expenses, difficulties,
complications and delays frequently encountered by companies in early stages of
development. Such risks generally include, but are not necessarily limited to,
the failure to develop or profitably exploit markets for the sale of the jade;
the failure of our current supplier to supply adequate quantities of jade to
allow us to operate profitably notwithstanding our agreement; the failure to
raise sufficient funds to acquire businesses we may identify to facilitate
obtaining new suppliers of jade production or to expand our distribution
capabilities, or to actually acquire any such businesses which we may so
identify for which we may have raised sufficient funds, or to successfully
integrate any such business which we may actually acquire; the failure to
anticipate and adapt to developing markets and/or to new governmental
regulations or domestic or foreign trade restrictions; the failure to
successfully compete against current or new competitors in the markets in which
we compete; the rejection of our products by our customers; and the failure to
successfully complete any of our business goals on a timely basis.





Our
cash flow depends heavily on the market price for jade.





The
cash flow and profitability of our current operations are significantly affected
by the market price of jade that is affected by numerous factors beyond our
control. Specifically, the prices for jade may be affected by the type and
amount of commercial and residential construction in the People's Republic of
China (“PRC”) and elsewhere, for which construction jade such as ours is used;
and the prices for gem quality jade depend on market demand, which is also
beyond our control. Factors that could cause such volatility include, among
other things: conditions or trends in the mining industries and governmental
regulations that affect such industries; changes in the market valuations of
other companies against whom we compete; general market and economic conditions
domestically and worldwide; general trade restrictions imposed by various
countries; and political events, including actions by the PRC government which
could delay shipment of our products and could have a materially adverse effect
on our operating results and financial condition, as well as international
reaction to political and economic events and developments in the PRC. Changes
in consumer preferences could reduce the demand for jade.





Although
demand and prices for jade have been relatively strong in recent years, we are
unable to predict future demand and prices, and cannot provide any assurance
that current levels of demand and prices will continue or that any future
increases in demand or price can be sustained. Any change in the preferences of
consumers could reduce the demand for jade. Failure to anticipate and respond to
changes in consumer preferences and demands could lead to, among other things,
customer dissatisfaction, failure to attract demand for our jade, loss of
contracts with our third party distributors and lower profit
margins.





An
economic downturn in the PRC could reduce demand for our product.





The
Chinese economy may experience a slowing growth rate due to a number of factors,
including but not limited to, instability in the global financial markets, the
appreciation of the RMB and economic and monetary policies adopted by the
Chinese government aimed at preventing overheating of the Chinese economy and
inflation. We have been affected by the current global economic downturn and
continue to be affected. Jade is a luxury product that is not a necessity. In
the current economic downturn, people are less willing to purchase luxuries such
as products made of jade. Consequently, the demand for our product has suffered
and may continue to be impacted. We cannot predict how long this will last, the
timing of any subsequent recovery of the shipments of our jade, or how much of
an impact the economy will have on our business and operating
results.


7


In 2009, we derived all of our revenue
from only five customers, and any loss, cancellation, reduction, or interruption
in these relationships could harm our business.  Of these five
customers, four have contracts which have been completed in full. We are not
certain as to when or how much jade the remaining onecustomer will require. If sales to such
customers were terminated or significantly reduced, our revenues and net income
could significantly decline. Our success will depend on our continued ability to
develop and manage relationships with our existing and new customers. Any
adverse change in our relationship with our customers may have a material
adverse effect on our business. Although we are attempting to expand our
customer base, we expect that our customer concentration will not change
significantly in the near future. We cannot be sure that we will be able to
retain our customers or that we will be able to attract additional customers or
that our customers will continue to buy our products in the same amounts as in
prior years. The loss of one or more of our customers, any reduction or
interruption in sales to these customers, our inability to successfully develop
relationships with additional customers or future price concessions that we may
have to make would adversely impact our operating revenues.





We
face significant actual and potential competition for our products.





We must
compete in a market with companies that have significantly greater experience
and history in the jade industry, have resources greater than ours and have
established business relationships and distribution channels better developed
than ours. We will compete with numerous jade suppliers worldwide, many of whom
possess substantially greater financial and other resources than us, including
experience and the ability to leverage economies of scale and to sell products
competitive with ours at a price more attractive to our purchasers, and who have
established reputations in the markets in which we will compete. There can be no
assurance that our products could compete effectively with such
competitors.





We also
compete with other stone distributors, including distributors of granite,
marble, limestone, travertine and other natural stones. Additionally, we compete
with manufacturers of so-called "engineered stone" as well as manufacturers of
other building materials like concrete, aluminum, glass, wood and other
materials. We compete with providers of these materials on the basis of price,
availability of supply, end-user preference for certain colors, patterns or
textures, and other factors.





We
currently rely on a single jade supplier for our raw jade, and we may lose sales
if our supplier fails to meet our needs.





We
have a distribution agreement with XiKai Mining whereby it has agreed to sell to
us 90% of the jade it produces from its SheTai Jade mine which represents our
sole source of jade. There can be no assurance that we will be able to find
other suppliers should that become necessary, and there can be no guarantee that
it will not become necessary.





We
may not be able to enforce our agreement with XiKai Mining.





We are
wholly dependent on XiKai Mining for our jade. There is no guarantee that XiKai
Mining will choose to continue to honor its agreement or that we would be able
to enforce our agreement in the Chinese courts if it were necessary to do so.
Even if the courts are available to us, the costs of litigation could be
substantial and the results uncertain.





Our
supplier could be unable to meet our needs.





There
can be no assurance that XiKai Mining will be able to continue to successfully
produce and distribute to us sufficient jade to enable us to realize anticipated
profits. Even if XiKai Mining desires to meet our needs, it could be unable to
do so because of events beyond its control, including, but not limited to:
geological events, such as an earthquake similar to that occurring in 2008 which
disrupted shipments for over three months, that disrupts or makes temporarily or
permanently impossible the continued exploitation of XiKai Mining's mines; a
loss of necessary government permits or unanticipated adverse governmental
regulation of jade production; labor unrest; equipment failures, accidents and
work injuries, a deterioration in the quality of the jade at XiKai's mine or
economic events that result in XiKai Mining's inability to mine or supply
jade.





The
mine is concentrated in one geographic region, which could cause it to be
impacted by regional events.





The
jade that we distribute is located exclusively in the She Tai Jade mine in Inner
Mongolia. Because of this geographic concentration, local or regional events,
such as natural disasters, may increase costs, reduce availability of equipment
or supplies, reduce demand or limit production. As a result, any such event may
impact our gross profit from our jade.





We
will face strong competition from other companies should we ever need or desire
to establish a new or additional supplier of jade.





We
may need or otherwise desire to replace and/or expand our supplies through the
negotiation of new agreements with XiKai Mining and/or other producers. There
can be no assurance that we will be able to negotiate any such agreement, or
that if we do we will be able to negotiate such an agreement on terms that are
favorable to us, or even if we do negotiate favorable terms that any such
agreement will not also be subject to the same risks as our current agreement
with XiKai Mining described elsewhere herein. In addition, there is a limited
supply of desirable mining lands available in the PRC and elsewhere where
exploration, mining and/or production activities may be conducted. Because we
could face strong competition from other companies for favorable distribution
agreements with companies that mine and supply raw jade, some of whom may be
able to leverage greater economies in negotiating distribution arrangements than
we are, we may be unable to adequately replace or supplement the desired supply
arrangement that we currently have with XiKai Mining.


8





The
mining industry in the PRC also has drawbacks that the mining industry does not
have within the United States.





The
mining industry in the PRC also has drawbacks that the mining industry does not
have within the United States. Even though we do not own the mine or manage the
mining operations, these factors could impact the Company. For
instance:





In China, insurance coverage is a relatively new concept compared to that of the
United States and, for certain aspects of a business operation, insurance
coverage is restricted or expensive. Workers' compensation for employees in the
PRC may be unavailable or, if available, insufficient to adequately cover such
employees.





The
environmental laws and regulations in the PRC set various standards regulating
certain aspects of health and environmental quality, including, in some cases,
the obligation to rehabilitate current and former facilities and locations where
operations are or were conducted.





Violation
of such standards could result in a temporary or permanent restriction by the
PRC of the mining operations of XiKai Mining and could negatively impact our
business.





Our
expanding operations risk.





We
may not be able to manage our expanding operations effectively. We anticipate
continued expansion of this business as we address market opportunities and
growth in our customer base. To manage the potential growth of our operations
and personnel, we will need to improve operational and financial systems,
procedures and controls, and expand, train and manage our growing employee base.
We cannot assure you that our current and planned personnel, systems, procedures
and controls will be adequate to support our future operations. There can be no
assurance that new management will be able to properly manage the direction of
our Company or that any intended change in our business focus will be
successful. If our management fails to properly manage and direct our Company,
our Company may be forced to scale back or abandon our existing operations,
which could cause the value of our shares to decline.





We
may be unsuccessful in any future strategy to acquire complementary businesses
or expand into carving, processing, and retail sale of jade.





Our
anticipated future business activities include expanding our business
capabilities through both internal growth and the acquisition of complementary
businesses related to the carving processing and retail sale of jade. We may be
unable to find additional complementary businesses to acquire or we may be
unable to enter into additional agreements in order to expand our current
business.





Completion
of future acquisitions also would expose us to potential risks, including risks
associated with:





u
            the
      assimilation of new operations, technologies and
  personnel;


u
            unforeseen
      or hidden liabilities;


u
            the
      diversion of resources from our existing
  businesses;


u
            the
      inability to generate sufficient revenue to offset the costs and expenses
      of acquisitions; and


u
            the
      potential loss of, or harm to relationships with, employees, customers and
      suppliers as a result of the integration of new
  businesses.





Our
brand and reputation may be harmed by counterfeit jade products.





The jade
markets in China and elsewhere in Asia are tainted by counterfeit products, the
presence of which has the potential to create a negative impact on the price of
raw jade. Any counterfeit jade products could damage the SheTai Jade brand and
could adversely impact the perception of customers of jade.





Estimates
of our future revenues and operating results are subject to inherent
uncertainties.





Our
short operating history and the rapidly changing nature of the markets in which
we compete make it difficult to accurately predict our revenues and operating
results. Furthermore, our revenues and operating results may fluctuate in the
future due to a number of factors, including the following:





u
            the
      introduction of competitive products by different or new
      competitors;


u
            reduced
      demand for raw jade;


u
            increased
      or uneven expenses, whether related to sales and marketing, product
      development or administration; and


u
            costs
      related to the expansion of the Company's business into related activities
      whether through acquisition or
otherwise.


9





Due to
these factors, predictions may not be achieved, either because expected revenues
do not occur or because they occur at lower prices or on terms that are less
favorable to us. In addition, these factors increase the chances that our
results could be lower than the expectations of investors and analysts. If so,
the market price of our stock would likely decline.





Risks
Related to Doing Business in the PRC





Adverse
changes in political and economic policies of the PRC government could impact
our operations, reduce the demand for our products and damage our
business.





We
conduct substantially all of our operations in China. Accordingly, our business,
financial condition, results of operations and prospects are affected
significantly by economic, political and legal developments in China. The PRC
economy differs from the economies of most developed countries in many respects,
including:





u
            the
      higher level of government
involvement;


u
            the
      early stage of development of the market-oriented sector of the
      economy;


u
            the
      rapid growth rate;


u
            the
      higher level of control over foreign exchange;
  and


u
            the
      process by which resources are
allocated.





As the
PRC economy has been transitioning from a planned economy to a more
market-oriented economy, the PRC government has implemented various measures to
encourage economic growth and guide the allocation of resources. While these
measures may benefit the overall PRC economy, they may also have a negative
effect on us.





Although
the PRC government has in recent years implemented measures emphasizing the
utilization of market forces for economic reform, the PRC government continues
to exercise significant control over economic growth in China through the
allocation of resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and imposing policies that impact
particular industries or companies in different ways.





Any
adverse change in the economic conditions or government policies in China could
have a material adverse effect on the overall economic growth and consequently
may have a material adverse effect on our operations.





Uncertainties
with respect to the PRC legal system could limit the legal protections available
to you and us.





We
conduct substantially all of our business through our operating subsidiaries in
the PRC. Our operating subsidiaries are generally subject to laws and
regulations applicable to foreign investments in China and, in particular, laws
applicable to foreign-invested enterprises. The PRC legal system is based on
written statutes, and prior court decisions may be cited for reference but have
limited precedential value. Since 1979, a series of new PRC laws and regulations
have significantly enhanced the protections afforded to various forms of foreign
investments in China. However, since the PRC legal system continues to rapidly
evolve, the interpretations of many laws, regulations and rules are not always
uniform and enforcement of these laws, regulations and rules involve
uncertainties, which may limit legal protections available to you and us. In
addition, any litigation in China may be protracted and result in substantial
costs and diversion of resources and management attention.  In addition,
all of our executive officers and Directors are residents of China and not of
the United States, and substantially all the assets of these persons are located
outside the United States.  As a result, it could be difficult for
investors to affect service of process in the United States or to enforce a
judgment obtained in the United States against our Chinese operations and
subsidiaries.





The
PRC government exerts substantial influence over the manner in which we must
conduct our business activities.





The PRC
government has exercised and continues to exercise substantial control over
virtually every sector of the Chinese economy through regulation and state
ownership.  Our ability to operate in China may be harmed by changes in its
laws and regulations, including those relating to taxation, import and export
tariffs, environmental regulations, land use rights, property and other matters.
 We believe that our operations in China are in material compliance with
all applicable legal and regulatory requirements.  However, the central or
local governments of the jurisdictions in which we operate may impose new,
stricter regulations or interpretations of existing regulations that would
require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations.





Accordingly,
government actions in the future, including any decision not to continue to
support recent economic reform, a return to a more centrally planned economy, or
regional or local variations in the implementation of economic policies, could
have a significant effect on economic conditions in China or particular regions
thereof and could require us to divest ourselves of any interest we then hold in
Chinese properties or joint ventures.


10





Restrictions
on currency exchange may limit our ability to distribute dividends.





Most of
our revenues and expenses are denominated in RMB. Under PRC law, the RMB is
currently convertible under the “current account,” which includes dividends and
trade and service-related foreign exchange transactions, but not under the
“capital account,” which includes foreign direct investment and loans.
Currently, our PRC operating subsidiaries may purchase foreign currencies for
settlement of current account transactions, including payments of dividends to
us, without the approval of the State Administration of Foreign Exchange,
(“SAFE”), by complying with certain procedural requirements. However, the
relevant PRC government authorities may limit or eliminate our ability to
purchase foreign currencies in the future.





Foreign
exchange transactions by PRC operating subsidiaries under the capital account
continue to be subject to significant foreign exchange controls and require the
approval of or need to register with PRC government authorities, including SAFE.
In particular, if our PRC operating subsidiaries borrow foreign currency funds,
these loans must be registered with SAFE, and if we finance the subsidiaries by
means of additional dollar capital contributions, these capital contributions
must be approved by certain government authorities, including the Ministry of
Commerce, or MOFCOM, or their respective local counterparts. These limitations
could affect their ability to obtain foreign exchange through debt or equity
financing.





Failure
to comply with PRC regulations relating to the establishment of offshore special
purpose companies by PRC residents may subject our PRC resident stockholders to
personal liability, limit our ability to acquire PRC companies or to inject
capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to
distribute profits to us or otherwise materially adversely affect
us.





In
October 2005, SAFE issued the Notice on Relevant Issues in the Foreign Exchange
Control over Financing and Return Investment Through Special Purpose Companies
by Residents Inside China, generally referred to as Circular 75, which required
PRC residents to register with the competent local SAFE branch before
establishing or acquiring control over an offshore special purpose company, or
SPV, for the purpose of engaging in an equity financing outside of China on the
strength of domestic PRC assets originally held by those residents. Internal
implementing guidelines issued by SAFE, which became public in June 2007 (known
as Notice 106), expanded the reach of Circular 75 by (i) purporting to cover the
establishment or acquisition of control by PRC residents of offshore entities
which merely acquire “control” over domestic companies or assets, even in the
absence of legal ownership; (ii) adding requirements relating to the source of
the PRC resident’s funds used to establish or acquire the offshore entity; (iii)
covering the use of existing offshore entities for offshore financings; (iv)
purporting to cover situations in which an offshore SPV establishes a new
subsidiary in China or acquires an unrelated company or unrelated assets in
China; and (v) making the domestic affiliate of the SPV responsible for the
accuracy of certain documents which must be filed in connection with any such
registration, notably, the business plan which describes the overseas financing
and the use of proceeds. Amendments to registrations made under Circular 75 are
required in connection with any increase or decrease of capital, transfer of
shares, mergers and acquisitions, equity investment or creation of any security
interest in any assets located in China to guarantee offshore obligations, and
Notice 106 makes the offshore SPV jointly responsible for these filings. In the
case of an SPV which was established, and which acquired a related domestic
company or assets, before the implementation date of Circular 75, a retroactive
SAFE registration was required to have been completed before March 31, 2006;
this date was subsequently extended indefinitely by Notice 106, which also
required that the registrant establish that all foreign exchange transactions
undertaken by the SPV and its affiliates were in compliance with applicable laws
and regulations. Failure to comply with the requirements of Circular 75, as
applied by SAFE in accordance with Notice 106, may result in fines and other
penalties under PRC laws for evasion of applicable foreign exchange
restrictions. Any such failure could also result in the SPV’s affiliates being
impeded or prevented from distributing their profits and the proceeds from any
reduction in capital, share transfer or liquidation to the SPV, or from engaging
in other transfers of funds into or out of China.





We
believe our stockholders who are PRC residents as defined in Circular 75 have
registered with the relevant branch of SAFE, as currently required, in
connection with their equity interests in us and our acquisitions of equity
interests in our PRC subsidiaries. However, we cannot
provide any assurances that their existing registrations have fully complied
with, and they have made all necessary amendments to their registration to fully
comply with, all applicable registrations or approvals required by Circular 75.
 Moreover, because of uncertainty over how Circular 75 will be interpreted
and implemented, and how or whether SAFE will apply it to us, we cannot predict
how it will affect our business operations or future strategies.  For
example, our present and prospective PRC subsidiaries’ ability to conduct
foreign exchange activities, such as the remittance of dividends and foreign
currency-denominated borrowings, may be subject to compliance with Circular 75
by our PRC resident beneficial holders.  In addition, such PRC residents
may not always be able to complete the necessary registration procedures
required by Circular 75.  We also have little control over either our
present or prospective direct or indirect stockholders or the outcome of such
registration procedures.  A failure by our PRC resident beneficial holders
or future PRC resident stockholders to comply with Circular 75, if SAFE requires
it, could subject these PRC resident beneficial holders to fines or legal
sanctions, restrict our overseas or cross-border investment activities, limit
our subsidiaries’ ability to make distributions or pay dividends or affect our
ownership structure, which could adversely affect our business and
prospects.


11





We
may be unable to complete a business combination transaction efficiently or on
favorable terms due to complicated merger and acquisition regulations which
became effective on September 8, 2006.





On August
8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the
Regulation on Mergers and Acquisitions of Domestic Companies by Foreign
Investors, which became effective on September 8, 2006. This new regulation,
among other things, governs the approval process by which a PRC company may
participate in an acquisition of assets or equity interests.  Depending on
the structure of the transaction, the new regulation will require the PRC
parties to make a series of applications and supplemental applications to the
government agencies.  In some instances, the application process may
require the presentation of economic data concerning a transaction, including
appraisals of the target business and evaluations of the acquirer, which are
designed to allow the government to assess the transaction.  Government
approvals will have expiration dates by which a transaction must be completed
and reported to the government agencies.  Compliance with the new
regulations is likely to be more time consuming and expensive than in the past
and the government can now exert more control over the combination of two
businesses.  Accordingly, due to the new regulation, our ability to engage
in business combination transactions has become significantly more complicated,
time consuming and expensive, and we may not be able to negotiate a transaction
that is acceptable to our stockholders or sufficiently protect their interests
in a transaction.





The new
regulation allows PRC government agencies to assess the economic terms of a
business combination transaction.  Parties to a business combination
transaction may have to submit to the Ministry of Commerce and other relevant
government agencies an appraisal report, an evaluation report and the
acquisition agreement, all of which form part of the application for approval,
depending on the structure of the transaction.  The regulations also
prohibit a transaction at an acquisition price obviously lower than the
appraised value of the PRC business or assets and in certain transaction
structures, require that consideration must be paid within defined periods,
generally not in excess of a year.  The regulation also limits our ability
to negotiate various terms of the acquisition, including aspects of the initial
consideration, contingent consideration, holdback provisions, indemnification
provisions and provisions relating to the assumption and allocation of assets
and liabilities.  Transaction structures involving trusts, nominees and
similar entities are prohibited.  Therefore, such regulation may impede our
ability to negotiate and complete a business combination transaction on
financial terms that satisfy our investors and protect our stockholders’
economic interests.





Fluctuations
in exchange rates could adversely affect our business and the value of our
securities.





The value
of our common stock could be indirectly affected by the foreign exchange rate
between the U.S. dollar and RMB. Because substantially all of our earnings and
cash assets are denominated in RMB, appreciation or depreciation in the value of
the RMB relative to the U.S. dollar would affect our financial results reported
in U.S. dollar terms, before giving effect to any underlying change in our
business or results of operations.  Fluctuations in the exchange rate
will also affect the relative value of any dividend we issue as it is exchanged
into U.S. dollars and earnings from, and the value of, any U.S.
dollar-denominated investments we make in the future.





Although
the People’s Bank of China regularly intervenes in the foreign exchange market
to prevent significant short-term fluctuations in the exchange rate, the RMB may
appreciate or depreciate significantly in value against the U.S. dollar in the
medium to long term. Moreover, it is possible that in the future PRC authorities
may lift restrictions on fluctuations in the RMB exchange rate and lessen
intervention in the foreign exchange market.





Very
limited hedging transactions are available in China to reduce our exposure to
exchange rate fluctuations. To date, we have not entered into any hedging
transactions in an effort to reduce our exposure to foreign currency exchange
risk. While we may enter into hedging transactions in the future, the
availability and effectiveness of these transactions may be limited, and we may
not be able to successfully hedge our exposure at all. In addition, our foreign
currency exchange losses may be magnified by PRC exchange control regulations
that restrict our ability to convert RMB into foreign currencies.





Risks
Related to the Company.





The
relative lack of public company experience of our management team may put us at
a competitive disadvantage.





Our
management team lacks public company experience, which could impair our ability
to comply with legal and regulatory requirements such as those imposed by
Sarbanes-Oxley Act of 2002. Individuals who now constitute our senior management
have never had responsibility for managing a publicly traded company. Such
responsibilities include complying with federal securities laws and making
required disclosures on a timely basis. Our senior management may not be able to
implement programs and policies in an effective and timely manner that
adequately responds to such increased legal, regulatory compliance and reporting
requirements. Our failure to comply with all applicable requirements could lead
to the imposition of fines and penalties and distract our management from
attending to the growth of our business.





We will continue
to incur significant increased costs as a result of operating as a public
company, and management will be required to devote substantial time to
compliance requirements.





As a
public company we incur significant legal, accounting and other expenses under
the Sarbanes-Oxley Act of 2002, together with rules implemented by the
Securities and Exchange Commission and applicable market regulators. These rules
impose various requirements on public companies, including requiring certain
corporate governance practices. Our management and other personnel will need to
devote a substantial amount of time to these compliance requirements. Moreover,
these rules and regulations will increase our legal and financial compliance
costs and will make some activities more time-consuming and
costly.


12





In
addition, the Sarbanes-Oxley Act requires, among other things, that we maintain
effective internal controls for financial reporting and disclosure controls and
procedures. In particular, we must perform system and process evaluations and
testing of our internal controls over financial reporting to allow management
and our independent registered public accounting firm to report on the
effectiveness of our internal controls over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act. Such testing, or the subsequent testing
by our independent registered public accounting firm, may reveal deficiencies in
our internal controls over financial reporting that are deemed to be material
weaknesses. Compliance with Section 404 may require that we incur substantial
accounting expenses and expend significant management efforts. If we are not
able to comply with the requirements of Section 404 in a timely manner, or if
our accountants later identify deficiencies in our internal controls over
financial reporting that are deemed to be material weaknesses, the market price
of our common stock could decline and we could be subject to sanctions or
investigations by the Commission or other applicable regulatory
authorities.





Insiders
have substantial control over us, and they could delay or prevent a change in
our corporate control even if our other stockholders want it to
occur.





Our
executive officers, Directors, and principal stockholders who hold 5% or more of
the outstanding common stock and their affiliates beneficially owned as of
December 31, 2009, in the aggregate, approximately 55.65% of our outstanding
common stock. These stockholders will be able to exercise significant control
over all matters requiring stockholder approval, including the election of
Directors and approval of significant corporate transactions. This could delay
or prevent an outside party from acquiring or merging with us even if our other
stockholders wanted it to occur.





We
depend on key personnel and have no key man insurance.





We
depend on our key management and other personnel. Our future success depends to
a significant extent upon the continued service of our executive officers and
other key management and on our ability to continue to attract, retain and
motivate executive and other key employees, including those in managerial and
sales positions. The loss of the services of one or more of our key employees or
our failure to attract, retain and motivate qualified personnel could have a
material adverse effect on our business, financial condition and results of
operations. Although most of these personnel are founders and stockholders,
there can be no assurance that we can be successful in retaining them. We do not
have key man insurance.





Our
Executives are not fluent in English and may have different perspectives on
business situations based on differences between Chinese and American
culture.





Our
management is comprised of individuals born and raised in the PRC who are not
fluent in English. As a result of differences in culture, educational background
and business experiences, our management may analyze, evaluate and present
business opportunities and results of operations differently from the way they
are analyzed, evaluated and presented by management teams of public companies in
Europe and the United States.  In addition, our management has very
limited skills in English. Consequently, it is possible that our management team
will emphasize or fail to emphasize aspects of our business that might
customarily be emphasized in a different manner by comparable public companies
from different geographical and political areas.





Risks
Related to Our Common Stock





There
is a limited public market for the common stock.





There
is currently a limited public market for our common stock. Holders of our common
stock may, therefore, have difficulty selling their common stock, should they
decide to do so. In addition, there can be no assurances that such markets will
continue or that any shares of common stock, which may be purchased, may be sold
without incurring a loss. Any such market price of the common stock may not
necessarily bear any relationship to our book value, assets, past operating
results, financial condition or any other established criteria of value, and may
not be indicative of the market price for the common stock in the future.
Further, our market price for the common stock may be volatile depending on a
number of factors, including business performance, industry dynamics, and news
announcements or changes in general economic conditions.





We
may issue shares of our capital stock or debt securities to complete an
acquisition, which would reduce the equity interest of our stockholders or
subject our company to risks upon default





We
may issue our securities to acquire companies or assets. Most likely, we will
issue additional shares of our common stock or issue shares of preferred stock,
or both, to complete acquisitions. If we issue additional shares of our common
stock or shares of our preferred stock, the equity interest of our existing
stockholders may be reduced significantly, and the market price of our common
stock may decrease. The shares of preferred stock we issue are likely to provide
holders with dividend, liquidation and voting rights, and may include conversion
rights, and participation rights, senior to, and more favorable than, the rights
and powers of holders of our common stock. If we issue debt securities as part
of an acquisition, and we are unable to generate sufficient operating revenues
to pay the principal amount and accrued interest on that debt, we may be forced
to sell all or a significant portion of our assets to satisfy our debt service
obligations, unless we are able to refinance or negotiate an extension of our
payment obligation.


13





Future sales of
our common stock, or the perception that such sales could occur, could have an
adverse effect on the market price of our common stock.





There are
approximately 79,980,000 shares of our common stock outstanding. There are a
limited number of holders of our common stock. Future sales of our common stock,
pursuant to a registration statement or Rule 144 under the Securities Act, or
the perception that such sales could occur, could have an adverse effect on the
market price of our common stock. Any attempt to sell a substantial number of
our shares could severely depress the market price of our common stock. As noted
above, we may use our capital stock in the future to finance acquisitions and to
compensate employees and management, which would further dilute the interests of
our existing shareholders and could also depress the trading price of our common
stock.





The
common stock may be deemed penny stock with a limited trading
market.





Our
common stock is currently listed for trading in the Over-The-Counter Bulletin
Board, owned and operated by FINRA, Inc. (formerly NASD, Inc.) which is
generally considered to be less efficient than the NASDAQ market or other
national exchanges, and which may cause difficulty in conducting trades and
difficulty in obtaining future financing. Further, our securities are subject to
the "penny stock rules" adopted pursuant to Section 15 (g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The penny stock rules
apply to non-NASDAQ companies whose common stock trades at less than $5.00 per
share or which have tangible net worth of less than $5,000,000 ($2,000,000 if
the company has been operating for three or more years). Such rules require,
among other things, that brokers who trade "penny stock" to persons other than
"established customers" complete certain documentation, make suitability
inquiries of investors and provide investors with certain information concerning
trading in the security, including a risk disclosure document and quote
information under certain circumstances. Many brokers have decided not to trade
"penny stock" because of the requirements of the penny stock rules and, as a
result, the number of broker-dealers willing to act as market makers in such
securities is limited. In the event that we remain subject to the "penny stock
rules" for any significant period, there may develop an adverse impact on the
market, if any, for our securities. Because our securities are subject to the
"penny stock rules" investors will find it more difficult to dispose of our
securities.





Further,
for companies whose securities are traded in the Over-The-Counter Market, it is
more difficult: (i) to obtain accurate quotations; (ii) to obtain coverage for
significant news events because major wire services, such as the Dow Jones News
Service, generally do not publish press releases about such companies, and (iii)
to obtain needed capital.





We
have not and do not anticipate paying any dividends on our common stock; because
of this our securities could face a lower valuation in the market.





We have
paid no dividends on our common stock while the Company has been a public
company, and it is not anticipated that any dividends will be paid to
holders of our common stock in the foreseeable future. While our dividend policy
will be based on the operating results and capital needs of the business, it is
anticipated that any earnings will be retained to finance our future expansion
and for the implementation of our business plan. Additionally, current
regulations in China would permit our operating company in China to pay
dividends to us only out of its accumulated distributable profits, if any,
determined in accordance with Chinese accounting standards and regulations. In
addition, our operating company in China will be required to set aside at least
10% (up to an aggregate amount equal to half of its registered capital) of its
accumulated profits each year. Such reserve account may not be distributed as
cash dividends. In addition, if our operating company in China incurs debt on
its own behalf in the future, the instruments governing the debt may restrict
its ability to pay dividends or make other payments to us. Lack of a dividend
can further affect the market value of our common stock, and could significantly
affect the value of any investment in us.


Risks
related to financial reports and estimates.





We
are subject to critical accounting policies and actual results may vary from our
estimates. We follow generally accepted accounting principles in the United
States in preparing our financial statements. As part of this work, we must make
many estimates and judgments concerning future events. These affect the value of
the assets and liabilities, contingent assets and liabilities, and revenue and
expenses reported in our financial statements. We believe that these estimates
and judgments are reasonable, and we make them in accordance with our accounting
policies based on information available at the time. However, actual results
could differ from our estimates, and this could require us to record adjustments
to expenses or revenues that could be material to our financial position and
results of operations in the future.





Item
2. Properties.





On
December 10, 2007, the Company entered into a lease agreement with GuoXi Group
for office space located at Yujiang City of Jiangxi Province, PRC. The lease has
a term of two years and requires monthly payments of RMB 20,000 (approximately
$2,900). The Company extended the lease for one additional year with no
contract.


14





The
Company does not own any real property. Management believes that the Company's
facilities are adequate to meet its current needs and should continue to be
adequate for the foreseeable future.





Item
3. Legal Proceedings.





From
time to time, we may become involved in various lawsuits and legal proceedings
in the ordinary course of our business. We are currently not aware of any legal
proceedings the ultimate outcome of which, in our judgment based on information
currently available, would have a material adverse affect on our business,
financial condition or operating results.





Item
4. Reserved.





PART
II





Item
5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.





Market
for Our Common Stock





Our
common stock is traded in the over-the-counter market (the OTC Bulletin Board).
On May 14, 2008, Jade Art Group Inc. has been informed by NASDAQ that its ticker
symbol was being changed from JADG to JADA, effective as of the open of business
on May 15, 2008.





On
May 15, 2008, a reverse stock split of the Company's issued and outstanding
common stock on a one (1) for three (3) basis became effective.





The
Company declared a three-for-one (3:1) forward stock split, in the nature of a
share dividend, with respect to the shares of our common stock issued and
outstanding at the close of business on December 28, 2007.





The
prices set forth below reflect the quarterly high and low bid price information
for shares of our common stock for the periods indicated.





Closing
      Prices (1)High
                  
                  
                  LowYear
      Ended December 31, 20091st Quarter
                  
                  $
                  4.00
                  
                  
                  $
                  0.552nd Quarter
                  
                  $
                  1.80
                  
                  
                  $
                  0.103rd Quarter
                  
                  $
                  0.26
                  
                  
                  $
                  0.154th Quarter
                  
                  $
                  0.99
                  
                  
                  $
                  0.18




Year
      Ended December 31, 20081st Quarter
                  
                  $
                  2.60
                  
                  
                  $
                  0.602nd Quarter
                  
                  $
                  4.00
                  
                  
                  $
                  0.503rd Quarter
                  
                  $
                  5.25
                  
                  
                  $
                  1.804th Quarter
                  
                  $
                  2.97
                  
                  
                  $
                  0.25





(1)    The above
tables set forth the range of high and low closing prices per share of our
common stock as reported by finance.google.com
for the periods indicated.





Holders





As of
December 31, 2009, our common stock was held of record by 298
stockholders.





Dividend
Policy





We
have never paid cash dividends on our common stock. We currently intend to
retain and use any future earnings for the development and expansion of our
business and do not anticipate paying any cash dividends in the foreseeable
future.


15





Equity
Compensation Plans





The
Company does not currently have any equity compensation plans.





Performance
Graph





The
graph compares the yearly cumulative total shareholder return on the Company's
Common Stock with the yearly cumulative total return of (a) the NASDAQ Market
and (b) a peer group of companies that have a market capitalization similar to
that of the Company.





The
Company does not believe that it can reasonably identify a peer group of
companies, on an industry or line-of-business basis, for the purpose of
developing a comparative performance index. While the Company is aware that some
other publicly-traded companies market products in similar lines-of-business,
none of these other companies distribute raw jade. Moreover, some of these other
companies that engage in the Company's line-of-business do so through divisions
or subsidiaries that are not publicly-traded. Furthermore, many of these other
companies are substantially more highly capitalized than the Company. For these
reasons, any such comparison would not, in the opinion of the Company, provide a
meaningful index of comparative performance.





The
comparisons in the graph below are based on historical data and are not
indicative of, or intended to forecast, the possible future performance of the
Company's Common Stock.





COMPARISON
OF CUMULATIVE TOTAL RETURN OF ONE OR MORE COMPANIES, PEER GROUPS, INDUSTRY
INDEXES AND/OR BROAD MARKETS





FISCAL
      YEAR ENDEDCOMPANY/INDEX/MARKET
                            
                            10/23/2007
                            
                            
                            12/31/2007
                            
                            
                            12/31/2008
                            
                            
                            12/31/2009Jade
      Art Group Inc.
                            
                            
                            100.00
                            
                            
                            
                            250.00
                            
                            
                            
                            255.00
                            
                            
                            
                            68.00NASDAQ
      Market Index
                            
                            
                            100.00
                            
                            
                            
                            94.75
                            
                            
                            
                            56.33
                            
                            
                            
                            81.06





Purchases
of Equity Securities by the Company and Affiliated Purchasers





During
the fiscal year ended December 31, 2009, neither the Company nor any affiliated
purchasers purchased any shares of our common stock.





Item
6. Selected Financial Data.





Not
required.





Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operation.





Special
Note Regarding Forward Looking Information





This report contains forward-looking
statements that reflect management's current views and expectations with respect
to our business, strategies, future results and events, and financial
performance. All statements made in this report other than statements of
historical fact, including statements that address operating performance, events
or developments that management expects or anticipates will or may occur in the
future, including statements related to future reserves, cash flows, revenues,
profitability, adequacy of funds from operations, statements expressing general
optimism about future operating results and non-historical information, are
forward-looking statements. In particular, the words "believe," "expect,"
"intend," "anticipate," "estimate," "plan," "may," "will," variations of such
words and similar expressions identify forward-looking statements, but are not
the exclusive means of identifying such statements and their absence does not
mean that the statement is not forward-looking. Readers should not place undue
reliance on forward-looking statements which are based on management's current
expectations and projections about future events, are not guarantees of future
performance, are subject to risks, uncertainties and assumptions. Our actual
results, performance or achievements could differ materially from the results
expressed in, or implied by, these forward-looking statements. Factors that
could cause or contribute to such differences include those discussed in this
report, particularly under the caption "Risk Factors." Except as required under
the federal securities laws, we do not undertake any obligation to update the
forward-looking statements in this report.


16





Overview





The
Company is a seller and distributor in China of raw jade, ranging in uses from
decorative construction material for both the commercial and residential markets
to high-end jewelry. For more than 30 years, the Company's business consisted of
manufacturing and selling hand and machine-carved wood products, such as
furniture, architectural accents and Buddhist figurines in China. Commencing in
2007, we experienced a reduction of revenue from our woodcarving business, which
largely resulted from increased competition. As a result, we decided to dispose
of our wood products business and to enter the business of raw jade sales and
distribution, which management believed presented a better long-term growth
potential. On January 11, 2008, we formed a new wholly owned Chinese subsidiary,
JiangXi SheTai Jade Industrial Company Limited ("STJ"), to engage in the sale
and distribution of raw jade throughout China. Our goal is to meet China's
increasing demand for jade and to eventually vertically integrate our raw jade
distribution activities with jade processing, carving, polishing, and, at a
later date, retail sales.





On
January 17, 2008, the Company entered into an Exclusive Distribution Rights
Agreement (the "Exchange Agreement") with Wulateqianqi XiKai Mining Co., Ltd.
("XiKai Mining"). Under the Exchange Agreement, XiKai Mining committed to sell
to the Company 90% of the raw jade material produced from its SheTai Jade mine,
located in Wulateqianqi, China, for a period of 50 years (the "Exclusive
Rights"). In exchange for these Exclusive Rights, the Company agreed to pay
XiKai Mining RMB 60 million (approximately $8.8 million) by March 31, 2009 and,
to transfer to XiKai Mining 100% of our ownership interest in all of the
Company's woodcarving operations, which were contained in Jiangxi XiDa. This
transfer of Jiangxi XiDa was made on February 20, 2008.





XiKai
Mining is the Company's sole source for raw jade. Under the Exchange Agreement,
the price for the raw jade material has been set for the first five years at RMB
2,000 (approximately $290) per metric ton, and is subsequently subject to
renegotiation every five years with adjustments not to exceed 10%. This mine
commenced operation in 2002 and the annual capacity in 2009 was 25,000 tons. It
has one of the largest jade reserves in China. According to a survey report
issued by the Inner Mongolia Geological Institution, the mine has proven and
probable reserves of approximately six million metric tons. SheTai Jade is a
form of jadeite found in the mountain ranges of Inner Mongolia, China. The jade
from the SheTai mine is stainless, non-corrosive, non-weathering and resists
fading.  Observers have stated that it has a glassy luster and a pure
and an attractive green color. It is also much harder and more durable than
other forms of jade. As a result of such characteristics, SheTai Jade has a
broad spectrum of applications, ranging from commercial and residential
construction and decorative jade artwork to intricately carved jade
jewelry.





The
supply of Jade from XiKai Mining was interrupted on June 10, 2008, when an
earthquake damaged the only road on which raw jade is transported from Xikai
Mining's warehouse. A smaller service road was still navigable, allowing basic
mining operations to continue. The mine was able to continue to mine raw jade,
cut jade and prepared for pick-up by the Company's customers at its warehouse.
However, due to the larger tonnage requirements, the shipment of raw jade from
the warehouse by the Company's customers was completely halted. The road was
subsequently repaired, and the shipment of raw jade from the mine commenced
again on September 23, 2008.





Results
of Operations Updated:





The
following table presents certain information derived from the consolidated
statements of operations of the Company for the twelve months ended December 31,
2009, and December 31, 2008.





All
amounts, other than percentages, in U.S. dollars





Year ended
                        December 31,
                        2009
                      
                      
                      Year ended
                        December 31,
                        2008
                      
                      
                      Increase
                        (Decrease)
                      
                      
                      Percentage
                        Increase
                        (Decrease)Sales
                      
                      $
                      25,309,675
                      
                      
                      $
                      30,537,079
                      
                      
                      $
                      (5,227,404
                      )
                      
                      
                      (17.1
                      )%Costs
      of sales
                      
                      
                      4,710,565
                      
                      
                      
                      5,225,273
                      
                      
                      
                      (514,708
                      )
                      
                      
                      (9.9
                      )%Gross
      profit
                      
                      
                      20,599,110
                      
                      
                      
                      25,311,806
                      
                      
                      
                      (4,712,696
                      )
                      
                      
                      (18.6
                      )%Selling,
      general, and administrative expenses
                      
                      
                      1,869,940
                      
                      
                      
                      2,806,341
                      
                      
                      
                      (936,401
                      )
                      
                      
                      (33.4
                      )%Income
      from continuing operations
                      
                      
                      18,729,170
                      
                      
                      
                      22,505,465
                      
                      
                      
                      (3,776,295
                      )
                      
                      
                      (16.8
                      )%Other
      income
                      
                      
                      8,153
                      
                      
                      
                      132,087
                      
                      
                      
                      (303,934
                      )
                      
                      
                      N/AInterest
      expense, net
                      
                      
                      5,418
                      
                      
                      
                      (421,507
                      )
                      
                      
                      (728,176
                      )
                      
                      
                      N/ALoss
      on forgiveness of debt
                      
                      
                      -
                      
                      
                      
                      (132,087
                      )Income
      before taxes from continuing operations
                      
                      
                      18,731,905
                      
                      
                      
                      22,083,958
                      
                      
                      
                      (3,352,053
                      )
                      
                      
                      (15.2
                      )%Provision
      for Income taxes
                      
                      
                      (5,563,819
                      )
                      
                      
                      (6,693,841
                      )
                      
                      
                      1,130,022
                      
                      
                      
                      N/ANet
      income from continuing operations
                      
                      
                      13,168,086
                      
                      
                      
                      15,390,117
                      
                      
                      
                      (2,222,031
                      )
                      
                      
                      (14.4
                      )%Net
      income from discontinued operations
                      
                      
                      -
                      
                      
                      
                      55,419,366
                      
                      
                      
                      (55,419,117
                      )
                      
                      
                      N/ANet
      income
                      
                      $
                      13,168,086
                      
                      
                      $
                      70,809,483
                      
                      
                      $
                      (57,641,397
                      )
                      
                      
                      (81.4
                      )%Comprehensive
      income
                      
                      $
                      13,175,436
                      
                      
                      $
                      71,705,450
                      
                      
                      $
                      (58,530,014
                      )
                      
                      
                      (81.6
                      )%


17




SALES





Subsequent
to the acquisition of the Exclusive Rights pursuant to the Exchange Agreement,
the Company's sales revenue has been derived solely from the sale of raw
jade.The revenue
from the sale of raw jade was $25,309,675 for the twelve months ended December
31, 2009, compared to $ 30,537,079 for the twelve months ended December 31,
2008, a decrease of $5, 227,404, or 17.1%.The decrease
was mainly due to the global economic downturn that has tempered the interest in
luxury goods such as jade. In addition, the Company’s management believes that
adverse weather conditions also impacted the ability to transport product in
2009.





COST
OF SALES





The cost
of sales was $4,710,565 during the twelve months ended December 31, 2009, which
represented approximately 18.6% of revenue, compared to $5,225,273 during the
twelve months ended December 31, 2008, which represented approximately
17.1% of revenue. This decrease of $514,708, or 9.9%, in cost of sales primarily
resulted from a decrease in the Company’s sales revenue. The increase of
1.5 percentage points in the cost of sales as a percentage of revenue reflects
the impact of the fixed cost amortization of the Exclusive Distribution Rights
Agreement spread over a lower revenue level.





GROSS
PROFIT





The
resulting gross profit for the twelve months ended December 31, 2009 was
$20,599,110, which represented approximately 81.4% of revenue, compared to
$25,311,806 for the twelve months ended December 31, 2008, which represented
approximately 82.9% of revenue, the decrease of $4,712,696, or 18.6% in gross
profit primarily resulting from a decrease in Company’s sales
revenue.





SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES





Selling,
General and Administrative Expenses were $1,869,940 for the twelve months
ended December 31, 2009, compared to $2,806,341 for the twelve months ended
December 31, 2008, a decrease of $936,401, or 33.4%. This decrease reflects the
decrease of sales commissions that resulted from the lower revenue
level.





INCOME
BEFORE TAXES FROM CONTINUING OPERATIONS





Income
before taxes from continuing operations was $18,731,905 for the twelve months
ended December 31, 2009, compared to $22,083,958 for the twelve months ended
December 31, 2008, a decrease of $3,352,053 or 15.2%. The reason for the
decrease in income before taxes from continuing operations resulted from
the decreased revenue.





INCOME
TAX EXPENSE





The
income tax expense pertaining to continuing operations for the twelve months
ended December 31, 2009, was $5,563,819. The income tax expense pertaining to
continuing operations for the twelve months ended December 31, 2008, was
$6,693,841.  This reduction was due to the lower level of taxable
income.





INCOME
FROM CONTINUING OPERATIONS





The
Company recorded Net Income from Continuing Operations of $13,168,086 during the
twelve months ended December 31, 2009, compared to $15,390,117 during the twelve
months ended December 31, 2008, a decrease of $2,222,031, or 14.4%. The reason
for decrease in income from continuing operation is a result of the lower
revenue level in 2009.





NET
INCOME





The Net
income for the twelve months ended December 31, 2009 was $13,168,086, compared
to $70,809,483 for the twelve months ended December 31, 2008, a decrease of
$57,641,397. The significant decrease in net income is primarily due to the net
income from discontinued operation of $55,419,366 recorded in 2008 from Jade Art
Group’s disposal of its wood-carving business.





LIQUIDITY
AND CAPITAL RESOURCES





As of
December 31, 2009, the Company’s cash was $147,392 as compared to $68,956 as of
December 31, 2008. The components of this $78,436 increase are reflected
below.


18





Cash
Flow





Twelve Months Ended
                                        December 31,2009
                                      
                                      
                                      2008Net
      cash provided by operating activities
                                      
                                      $
                                      11,123,026
                                      
                                      
                                      $
                                      19,780,956Net
      cash used in investing activities
                                      
                                      
                                      (8,787,089
                                      )
                                      
                                      
                                      (8,839,519
                                      )Net
      cash used in financing activities
                                      
                                      
                                      (2,264,851
                                      )
                                      
                                      
                                      (12,069,649
                                      )Effect
      of exchange rate changes
                                      
                                      
                                      7,350
                                      
                                      
                                      
                                      895,965Net
      cash inflow (outflow)
                                      
                                      $
                                      78,436
                                      
                                      
                                      $
                                      (232,247
                                      )





Net
Cash Provided by Operating Activities





During
the twelve months ended December 31, 2009, the Company had net cash flow
from operating activities of $11,123,026, comparing $19,780,956 provided in
2008, primarily attributable to the decrease of sales.





Net
Cash Used in Investing Activities





During the twelve months ended
December 31, 2009, the Company had net cash flow used in investing activities of
$8,787,089, compared
to$8,839,519used in 2008.This $8,787,089 was an acquisition
deposit paid toShenzhen Huanyatong Investment Development
Co., Ltd.to help the Company find an acquisition
target.Please refer toNote 3in the Notes to the Consolidated
FinancialStatements.





Net
Cash Used in Financing Activities





During
the twelve months ended December 31, 2009, the Company had net cash flow
used in financing activities of $2,264,851 compared to $12,069,649 used in 2008.
Both amounts are primarily attributable to payments of promissory notes issued
in conjunction with the Merger Agreement entered into on October 1,
2007.





Off-Balance
Sheet Arrangements





There
were no off-balance sheet arrangements during the year ended December 31, 2009
that have, or are reasonably likely to have, a current or future affect on our
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to our
interests.





Critical
Accounting Policies and Estimates





The
following discussion and analysis of financial position and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in conformity with accounting principles generally accepted
in the United States of America. The Company's significant accounting policies
are more fully described in Note 1 of the Notes to Consolidated Financial
Statements. Certain accounting estimates are particularly important to the
understanding of the Company's financial position and results of operations and
require the application of significant judgment by the Company's management or
can be materially affected by changes from period to period in economic factors
or conditions that are outside the control of management. The Company's
management uses their judgment to determine the appropriate assumptions to be
used in the determination of certain estimates. Those estimates are based on
historical operations, future business plans and projected financial results,
the terms of existing contracts, the observance of trends in the industry,
information provided by customers and information available from other outside
sources, as appropriate. The following discusses the Company's critical
accounting policies and estimates.





Principles
of Consolidation





The accompanying consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intra-company transactions and balances have been
eliminated on consolidation.


Use of
Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 revenues and expenses
during the reporting period. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. Actual results could differ from those
estimates.


19




Foreign
Currency Translation
 
 The
Company's functional currency is the Chinese Yuan Renminbi ("RMB"), and
reporting currency is the United States Dollar. The financial statements of the
Company are translated to United States Dollars in accordance with ASC Topic
830, Foreign Currency Matters (formerly SFAS No. 52, Foreign
Currency Translation). Monetary assets and liabilities denominated in foreign
currencies are translated using the exchange rate prevailing at the balance
sheet date. Transactions affecting the Company's revenue and expense accounts
are translated using an average exchange rate during the period presented. Gains
and losses arising on translation or settlement of foreign currency denominated
transactions or balances are included in the determination of income. Foreign
currency transactions are primarily undertaken in RMB. Foreign Currency
Translation Adjustments are included in Other Comprehensive Income and disclosed
as a separate category of Stockholders' Equity.
 
 Accounts
Receivable and Notes Receivable
 
 The
Company extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated risks by performing credit checks and
actively pursuing past due accounts. An allowance for doubtful accounts is
established and recorded based on management's assessment of the credit history
with the customer and current relationships with them.
 
 The
Company makes provision for bad debts based on an assessment of the
recoverability of accounts receivable. Specific provisions are applied to
related-party receivables and third-party receivables where events or changes in
circumstances indicate that the balances may not be collectible. As of December
31, 2009, and 2008, there was $250,000 and nil allowance recorded for the
doubtful accounts. While management uses the best information available upon
which to base estimates, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used for the
purposes of analysis.
 
 Revenue
Recognition
  The
Company recognizes revenues when goods are shipped, 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. Typical shipment terms for all customers are FOB shipping point. Goods
are considered shipped and delivered when a customer’s truck picks up goods at
the finished goods inventory location.
 
 Accounting
for Stock-Based Compensation
 
 The
Company accounts for stock-based compensation in accordance with the fair value
recognition provisions of ASC Topic 718, Compensation-Stock
Compensation (formerly SFAS 123(R)). The Company uses the Black-Scholes
option-pricing model, which involves certain subjective assumptions. These
assumptions include estimating the length of time employees will retain their
vested stock options before exercising them ("expected term"), the number of
options for which vesting requirements will not be completed ("forfeitures").
Changes in the subjective assumptions can materially affect estimates of fair
value stock-based compensation, and the related amount recognized on the
consolidated statement of operations.
 
 Recent
Accounting Pronouncements
 
 In March
2008, the FASB issued FASB Statement No. 161, (FASB ASC 815) “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
133.”  SFAS No. 161 (FASB ASC 815) enhances required
disclosures regarding derivatives and hedging activities, including enhanced
disclosures regarding how:  (a) an entity uses derivative instruments;
(b) derivative instruments and related hedged items are accounted for under FASB
No. 133, “Accounting for Derivative Instruments and Hedging Activities”; and (c)
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows.  Specifically, SFAS
No. 161 (FASB ASC 815) requires:
 
 ·
              disclosure
      of the objectives for using derivative instruments be disclosed in terms
      of underlying risk and accounting
designation;
 ·
              disclosure
      of the fair values of derivative instruments and their gains and losses in
      a tabular format;
 ·
              disclosure
      of information about credit-risk-related contingent
    features;
 ·
              and
      cross-reference from the derivative footnote to other footnotes in which
      derivative-related information is
disclosed.
 
 SFAS No.
161 (FASB ASC 815) is effective for fiscal years and interim periods beginning
after November 15, 2008.  Earlier application is
encouraged.  The management of Company does not expect the adoption of
this pronouncement to have a material impact on its financial
statements.
 
 On May 9,
2008, the FASB issued FASB Statement No. 162, (FASB ASC 105) “The Hierarchy of Generally Accepted
Accounting Principles.”  SFAS No. 162 (FASB ASC 105) is
intended to improve financial reporting by identifying a consistent framework,
or hierarchy, for selecting accounting principles to be used in preparing
financial statements that are presented in conformity with U.S. generally
accepted accounting principles (“GAAP”) for nongovernmental
entities.




20


Prior to
the issuance of SFAS No. 162 (FASB ASC 105), GAAP hierarchy was defined in the
American Institute of Certified Public Accountants (“AICPA”) Statement on
Auditing Standards (“SAS”) No. 69, “The Meaning of Present Fairly in
Conformity with Generally Accept Accounting Principles.”  SAS
No. 69 has been criticized because it is directed to the auditor rather than the
entity.  SFAS No. 162 (FASB ASC 105) addresses these issues by establishing
that the GAAP hierarchy should be directed to entities because it is the entity
(not the auditor) that is responsible for selecting accounting principles for
financial statements that are presented in conformity with GAAP.





The
sources of accounting principles that are generally accepted are categorized in
descending order as follows:





a.
            FASB
      Statements of Financial Accounting Standards and Interpretations, FASB
      Statement 133 Implementation Issues, FASB Staff Positions, and American
      Institute of Certified Public Accountants (AICPA) Accounting Research
      Bulletins and Accounting Principles Board Opinions that are not superseded
      by actions of the FASB.





b.
            FASB
      Technical Bulletins and, if cleared by the FASB, AICPA Industry Audit and
      Accounting Guides and Statements of
Position.





c.
            AICPA
      Accounting Standards Executive Committee Practice Bulletins that have been
      cleared by the FASB, consensus positions of the FASB Emerging Issues Task
      Force (EITF), and the Topics discussed in Appendix D of EITF Abstracts
      (EITF D-Topics).





d.
            Implementation
      guides (Q&As) published by the FASB staff, AICPA Accounting
      Interpretations, AICPA Industry Audit and Accounting Guides and Statements
      of Position not cleared by the FASB, and practices that are widely
      recognized and prevalent either generally or in the
    industry.





SFAS No.
162 (FASB ASC 105) is effective 60 days following the SEC’s approval of the
Public Company Accounting Oversight Board amendment to its authoritative
literature. It is only effective for nongovernmental entities; therefore, the
GAAP hierarchy will remain in SAS 69 for state and local governmental entities
and federal governmental entities. The management of Company does not expect the
adoption of this pronouncement to have a material impact on its financial
statements.





On May
26, 2008, the FASB issued FASB Statement No. 163, (FASB ASC 944)“Accounting for Financial Guarantee
Insurance Contracts.”  SFAS No. 163 (FASB ASC 944) clarifies
how FASB Statement No. 60, “Accounting and Reporting by
Insurance Enterprises” (“SFAS No. 60”), applies to financial guarantee
insurance contracts issued by insurance enterprises, including the recognition
and measurement of premium revenue and claim liabilities.  It also requires
expanded disclosures about financial guarantee insurance contracts.





The
accounting and disclosure requirements of SFAS No. 163 (FASB ASC 944) are
intended to improve the comparability and quality of information provided to
users of financial statements by creating consistency.  Diversity exists in
practice in accounting for financial guarantee insurance contracts by insurance
enterprises under SFAS No. 60, “Accounting and Reporting by
Insurance Enterprises.”  That diversity results in
inconsistencies in the recognition and measurement of claim liabilities because
of differing views about when a loss has been incurred under FASB Statement No.
5, “Accounting for
Contingencies” (“SFAS No. 5”).  SFAS No. 163 (FASB ASC 944) requires
that an insurance enterprise recognize a claim liability prior to an event of
default when there is evidence that credit deterioration has occurred in an
insured financial obligation.  It also requires disclosure about (a) the
risk-management activities used by an insurance enterprise to evaluate credit
deterioration in its insured financial obligations and (b) the insurance
enterprise’s surveillance or watch list.





SFAS No.
163 (FASB ASC 944) is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and all interim periods within those fiscal
years, except for disclosures about the insurance enterprise’s risk-management
activities.  Disclosures about the insurance enterprise’s risk-management
activities are effective the first period beginning after issuance of SFAS No.
163 (FASB ASC 944).  Except for those disclosures, earlier application is
not permitted.  The management of Company does not expect the adoption of
this pronouncement to have material impact on its financial
statements.





On May
22, 2009, the FASB issued FASB Statement No. 164, (FASB ASC 958) “Not-for-Profit Entities: Mergers and
Acquisitions”.  SFAS No. 164 (FASB ASC 958) is intended to improve
the relevance, representational faithfulness, and comparability of the
information that a not-for-profit entity provides in its financial reports about
a combination with one or more other not-for-profit entities, businesses, or
nonprofit activities.  To accomplish that, this Statement establishes
principles and requirements for how a not-for-profit entity:





a.
            Determines
      whether a combination is a merger or an
  acquisition.


b.
            Applies
      the carryover method in accounting for a
merger.


21


c.
            Applies
      the acquisition method in accounting for an acquisition, including
      determining which of the combining entities is the
    acquirer.


d.
            Determines
      what information to disclose to enable users of financial statements to
      evaluate the nature and financial effects of a merger or an
      acquisition.





This
Statement also improves the information a not-for-profit entity provides about
goodwill and other intangible assets after an acquisition by amending FASB
Statement No. 142, Goodwill
and Other Intangible Assets, to make it fully applicable to
not-for-profit entities.





SFAS No.
164 (FASB ASC 958) is effective for mergers occurring on or after December 15,
2009, and acquisitions for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2009. Early application is prohibited.  The management of Company does
not expect the adoption of this pronouncement to have material impact on its
financial statements.





On May
28, 2009, the FASB issued FASB Statement No. 165, (FASB ASC 855) “Subsequent
Events.”  SFAS No.  165 (FASB ASC 855) establishes general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued.  Specifically, Statement 165 (FASB ASC 855)
provides:





1.
            The
      period after the balance sheet date during which management of a reporting
      entity should evaluate events or transactions that may occur for potential
      recognition or disclosure in the financial
  statements.


2.
            The
      circumstances under which an entity should recognize events or
      transactions occurring after the balance sheet date in its financial
      statements.


3.
            The
      disclosures that an entity should make about events or transactions that
      occurred after the balance sheet
date.





In
accordance with this Statement, an entity should apply the requirements to
interim or annual financial periods ending after June 15, 2009.  The
adoption of this pronouncement did not have a material impact on the financial
statements of the Company.





In June
2009, the FASB issued FASB Statement No. 166, (FASB ASC 860) “Accounting for Transfers of
Financial Assets- an amendment of FASB Statement No,
140.”  SFAS No. 166 (FASB ASC 860) is a revision to SFAS
No. 140 “Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities” and will require more information about transfers of
financial assets, including securitization transactions, and where companies
have continuing exposure to the risks related to transferred financial
assets.  It eliminates the concept of a “qualifying special-purpose
entity,” changes the requirements for derecognizing financial assets, and
requires additional disclosures.





This
statement is effective for financial asset transfers occurring after the
beginning of an entity's first fiscal year that begins after November 15,
2009.  The management of Company does not expect the adoption of this
pronouncement to have material impact on its financial statements.





In June
2009, the FASB issued FASB Statement No. 167, (FASB ASC 810) "Amendments to FASB Interpretation
No. 46(R).”  SFAS No. 167 (FASB ASC 810) amends certain
requirements of FASB Interpretation No. 46(R), “Consolidation of Variable
Interest Entities” and changes how a company determines when an entity that is
insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated.  The determination of whether a company is
required to consolidate an entity is based on, among other things, an entity’s
purpose and design and a company’s ability to direct the activities of the
entity that most significantly impact the entity’s economic
performance.





This
statement is effective as of the beginning of each reporting entity’s first
annual reporting period that begins after November 15, 2009.  The
management of Company does not expect the adoption of this pronouncement to have
material impact on its financial statements.





In June
2009, the FASB issued FASB Statement No. 168, (FASB ASC 105) "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles - a
replacement of FASB Statement No. 162.”  SFAS No. 168 (FASB ASC
105) establishes the FASB Accounting Standards Codification (the "Codification")
to become the single official source of authoritative, nongovernmental U.S.
generally accepted accounting principles (“GAAP”).  The Codification did
not change GAAP but reorganizes the literature.





SFAS No.
168 (FASB ASC 105) is effective for interim and annual periods ending after
September 15, 2009.  The adoption of this pronouncement did not have a
material impact on the financial statements of the Company.





Item
8. Financial Statements.





Consolidated
Financial Statements


22


The
financial statements required by this item begin on page F-1
hereof.





Item
9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure.





None.





Item
9A(T). Controls and Procedures.





Disclosure
Controls and Procedures





We maintain disclosure controls and
procedures that are designed to ensure that information required to be disclosed
in our reports under the Securities Exchange Act of 1934 (the "Exchange Act") is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission (the "SEC"),
and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure based
closely on the definition of "disclosure controls and procedures" in Rule
15d-15(e) under the Exchange Act. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.





At the
end of the period covered by this Annual Report, we carried out an evaluation,
under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of the Company's disclosure controls and procedures.
Based upon the foregoing, our Chief Executive Officer and Chief Financial
Officer concluded that, as of December 31, 2009, the disclosure controls and
procedures of the Company were not effective.





Internal
Control over Financial Reporting





Management's
Annual Report on Internal Control over Financial Reporting





Section
404 of the Sarbanes-Oxley Act of 2002 requires that management document and test
the Company’s internal control over financial reporting and include in this
Annual Report on Form 10-K a report on management’s assessment of the
effectiveness of our internal control over financial reporting.





Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company's internal control over financial
reporting 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 in the
United States of America. The Company's internal control over financial
reporting includes those policies and procedures that: (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles in the United States of America, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and Directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could have a
material effect on the financial statements.





Any system of internal control, no
matter how well designed, has inherent limitations, including the possibility
that a control can be circumvented or overridden and misstatements due to error
or fraud may occur and not be detected in a timely manner. Also, because of
changes in conditions, internal control effectiveness may vary over time.
Accordingly, even an effective system of internal control will provide only
reasonable assurance with respect to financial statement
preparation.





Management assessed the effectiveness
of the Company's internal control over financial reporting as of December 31,
2009. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
"Internal Control-Integrated Framework." Based on management's assessment using
the COSO criteria, management has concluded that the Company's internal control
over financial reporting was not effective as of December 31, 2009. This is due
to the fact that the Company lacks sufficient personnel with the appropriate
level of knowledge, experience and training in the application of US generally
accepted accounting principles (“GAAP”) standards, especially related to
complicated accounting issues.  This could cause the Company to be unable
to fully identify and resolve certain accounting and disclosure issues that
could lead to a failure to maintain effective controls over preparation, review
and approval of certain significant account reconciliation from Chinese GAAP to
US GAAP and necessary journal entries.





The
Company has relatively small number of professionals employed by the Company in
bookkeeping and accounting functions, which prevents the Company from
appropriately segregating duties within its internal control systems.  The
inadequate segregation of duties is a weakness because it could lead to the
untimely identification and resolution of accounting and disclosure matters or
could lead to a failure to perform timely and effective
reviews.


23


Based on
the control deficiency identified above, we have designed and plan to implement,
or in some cases have already implemented, the specific remediation initiatives
described below:





●
            We
      are evaluating the roles of our existing accounting personnel in an effort
      to realign the reporting structure of our internal auditing staff in China
      that will test and monitor the implementation of our accounting and
      internal control procedures.





●
            We
      are in the process of completing a review and revision of the
      documentation of the Company’s internal control procedures and
      policies.





●
            We
      will begin implementation an initiative and training in China to ensure
      the importance of internal controls and compliance with established
      policies and procedures are fully understood throughout the organization
      and will provide additional U.S. GAAP training to all employees involved
      with the performance of or compliance with those procedures and
      policies.





●
            We
      will implement a formal financial reporting process that includes review
      by our Chief Executive Officer and the full Board of Directors of
      financial statements prior to filing with the
  SEC.





●
            We
      will increase our accounting and financing personnel resources, by
      retaining more U.S. GAAP knowledgeable financial
      professionals.





The
remedial measures being undertaken may not be fully effectuated or may be
insufficient to address the significant deficiencies we identified, and there
can be no assurance that significant deficiencies or material weaknesses in our
internal control over financial reporting will not be identified or occur in the
future.  If additional significant deficiencies (or if material weaknesses)
in our internal controls are discovered or occur in the future, among other
similar or related effects: (i) the Company may fail to meet future reporting
obligations on a timely basis, (ii) the Company’s consolidated financial
statements may contain material misstatements and (iii) the Company’s business
and operating results may be harmed.





This Annual Report does not include an
attestation report of the Company's registered public accounting firm regarding
internal control over financial reporting. Management's report was not subject
to attestation by the Company's registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the
company to provide only management's report in this Annual Report.





Changes
in Internal Control over Financial Reporting





There were no changes in our internal
control over financial reporting that occurred during the quarter ended December
31, 2009, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.





Item
9B. Other Information.





None.





PART
III





Item
10. Directors and Executive Officers of the Registrant.





Directors
and Executive Officers





The
following table sets forth information with respect to the Company's executive
officers' and Directors' names, ages, and positions. Executive officers serve
until the annual meeting of the Board of Directors and until his successor shall
have been duly elected and qualified, subject to earlier termination by his
death, resignation or removal.





Name
                  Age
                  PositionHuacai
      Song
                  46
                  Chief
      Executive Officer and DirectorChenqing
      Luo
                  38
                  Chief
      Financial OfficerRichard
      Khaleel (1)
                  60
                  Director





(1)Mr. Khaleel resigned as our
Director on July 31, 2009. Mr. Khaleel’s resignation was disclosed in the
Company’s current report on Form 8-K filed on August 6, 2009.


24


Huacai
Song, Chief Executive Officer and Director





Mr. Song has been Chief Executive
Officer and a Director of the Company since October 2007. Mr. Song, age 46, has
over 20 years of experience in international trade and the wood carving
industry, including the production, manufacture and marketing of wood carving
products. For more than 10 years, Mr. Song had been deputy manager of Jiangxi
XiDa Wood-carving Company Limited ("JXD"), which is the operating subsidiary of
Guoxi Holding Limited ("GHL"), in charge of development, sales and marketing of
those wood carving products. GHL was acquired by JADA under that merger
transaction consummated on October 2, 2007 (the "Merger Transaction"), which
Merger Transaction was previously reported on Form 8-K filed with the Securities
and Exchange Commission on October 3, 2007. During his years working with JXD,
Mr. Song successfully expanded the market and distribution system for Buddha
Shrines in Japan.





Chenqing
Luo, Chief Financial Officer





Mr. Luo has been Chief Financial
Officer of the Company since October 2007. Mr. Luo graduated from Jiangxi
College of Finance and Economics with a degree in Foreign Accounting. He joined
JXD as Chief Financial Officer in 1995. He has several years of experience in
financial management and strategic capital allocation.





Richard
E. Khaleel, Director





Mr. Khaleel was a Director of the
Company from April 2008 to July, 2009.





Board
Composition and Committees





All of our Directors serve until the
next annual meeting of shareholders and until their successors are elected by
the holders of our common stock, or until their earlier death, resignation or
removal. Our Bylaws set the authorized number of Directors at not less than one
or more than nine. The number of Directors may be fixed and changed from time to
time by ordinary resolution of the shareholders of the Company. Currently, our
Board of Directors consists of one member.





The Board presently consists of Mr.
Song, the Chief Executive Officer. After Mr. Khaleel’s resignation as a Director
of the Company on July 31, 2009, our Board of Directors currently has no
independent Directors as of the date hereof.





Our Bylaws authorize the Board of
Directors to designate committees, as they deem desirable, each consisting of
one or more of the Directors, with such powers and authority (to the extent
permitted by law, the certificate of incorporation and the Bylaws) as may be
provided in such resolution.





Our Board of Directors has not
established any audit, nomination or compensation, or other committees to date.
The entire Board performs the equivalent functions that such committees would
perform.





Compensation
of Directors





Our Bylaws provide that the
compensation of Directors may be determined by the Board of Directors, or if the
Board of Directors decide, by the shareholders. Members of the Board of
Directors who are members of management presently do not receive compensation
for their service as a member of the Board.





Effective April 2008, our non-employee
Director, Richard Khaleel, entered into an agreement with the Company to serve
as our non-executive independent Director commencing in 2008, until he is
removed, resigns, or is not reelected in accordance with our Bylaws. As a
Director, Mr. Khaleel was entitled to receive cash compensation of $40,000 per
year payable monthly. In addition, Mr. Khaleel could participate in any of our
medical, dental and other programs as are available to non-employee members of
our Board of Directors. Further, the Company would reimburse Mr. Khaleel for any
reasonable expenses incurred in furtherance of his performance of his duties and
responsibilities. The Company  paid Mr. Khaleel the full amount of the
Director's fees payable to him for his services in both 2008 and
2009.





On April 15, 2008, we granted to Mr.
Khaleel nonqualified stock options to purchase up to 33,333 shares of the
Company's common stock (the "Option Shares"), exercisable at a price of $3.45
per share (a price equal to the closing price per share of the Company's common
stock on April 15, 2008, as reported by the Over-the-Counter Bulletin Board).
Options to purchase one third of the Option Shares were exercisable immediately;
options to purchase an additional one third of the Option Shares were
exercisable on April 15, 2009, and options to purchase the remaining one third
of the Option Shares may be exercised commencing April 15, 2010. All outstanding
and unexercised options were to expire on the date that Mr. Khaleel is no longer
serving as a member of the Board of Directors of the Company. Mr. Khaleel was no
longer entitled to exercise his options as of July 31, 2009, the time he
resigned as a member of the Board of Directors of the Company.


25


Section
16(a) Beneficial Ownership Reporting Compliance





Due to the fact that the Company
does not have any Section 12(b) or Section 12(g) registered securities, our
Directors, executive officers and beneficial owners of more than 10% of our
common stock are not subject to Section 16(a) of the Securities Exchange Act of
1934 requirement as to filing with the SEC reports of their holdings of, and
transactions in, our common stock. However, some of our Directors, executive
officers or beneficial owners of more than 10% of our common stock have
voluntarily filed such reports in the past.





Family
Relationships





There are no family relationships among
our Directors or officers.





Code
of Ethics





We have adopted a code of ethics that
applies to all of our executive officers, Directors and employees. Code of
ethics codifies the business and ethical principles that govern all aspects of
our business. This document will be made available in print, free of charge, to
any shareholder requesting a copy in writing from our principal executive office
at #35, Baita Zhong Road, Yujiang County, Jiangxi Province, P.R. of
China.





Involvement
in Certain Legal Proceedings





The
Company is not aware of any legal proceedings in which any Director, officer, or
any owner of record or beneficial owner of more than five percent of any class
of voting securities of the Company, or any affiliate of any such Director,
officer, affiliate of the Company, or security holder, is a party adverse to the
Company or has a material interest adverse to the Company.





Item
11. Executive Compensation.





Compensation
Discussion and Analysis





Executive
Compensation Philosophy





The Company has its main operating
subsidiary in the PRC and almost all of its employees are Chinese who are
located and working in the PRC. Based on the economic circumstances in the PRC,
our compensation program is designed to attract, retain and motivate highly
qualified executives and drive sustainable growth. We compensate our executives
named in the summary compensation table, which we refer to as "named executive
officers or NEOs", through a competitive base salary and cash bonuses. This
compensation program is designed to be competitive with comparable companies and
to align executive compensation with the long-term interests of our owner. To
the extent determined to be appropriate, the Company also considers general
economic conditions, the Company's financial performance, and the individual's
performance in establishing the compensation opportunities for the named
executive officers. As discussed in Item 10, above, we have not established any
compensation committee to date and, accordingly, our full Board performs the
functions of a compensation committee.





Elements
of Our Compensation





The compensation framework for our
named executive officers consists of the base salary, annual cash bonuses, and
medical, retirement and unemployment benefits (as such will be addressed in more
detail under the caption "Employee Benefits" below. In addition to the key
element of compensation, our compensation framework includes limited fringe
benefits (such as reimbursement of cellular phone bills), perquisites, and other
benefits, which are not a significant or necessary element of our executive's
compensation. We do not have any long-term incentive compensation mechanisms
because our key employees are engaging in sales and they tend to change jobs
frequently and we believe that the use of non-cash, equity incentive
compensation opportunities will not be effective or appropriate to attract,
motivate and retain such individuals. We do not have any long-term incentive
compensation mechanisms for our NEOs because each of our NEOs has already owned
substantial equity interests in the Company.





Base
Salaries





Our named executive officers receive a
majority of their overall cash compensation as base salary, which is usually
determined in the beginning of each calendar year. Generally, base salaries have
not been based upon specific measures of corporate performance, but are
determined by our Board, based upon their determination of each employee's
individual performance, position and responsibilities, and contributions to both
our financial performance and ethical culture. Base salaries are also determined
based on external factors, such as cost of living in the areas in which our NEOs
reside and current market conditions. Our NEOs' base salaries are at least
comparable with those who hold similar positions in the similar industries
within the region where our NEOs reside.


26


Annual
Bonuses





The bonuses in fiscal years 2009, and
2008, were discretionary and were set by the Board of Directors.  The Board
of Directors considered, among other factors as it may deem relevant, the value
of similar bonus awards to the people in similar positions at the following
comparable companies in Yujiang County, Jiangxi Province.





2008
      and 2009 average bonus awards for senior managers per year (in
      USD)1
                      
                      Shiji
      Sunshine Yujiang Zhaoming Company Ltd.
                      
                      $
                      6,0002
                      
                      Jiangxi
      Yujiang Pharmaceutical Manufacture Co.
                      
                      $
                      3,5003
                      
                      Jiangxi
      Henghui Optical Glasses Company Ltd.
                      
                      $
                      4,2004
                      
                      Jiangxi
      Yujiang Cement Plantation Factory
                      
                      $
                      6,0005
                      
                      Jiangxi
      Province Yujiang County Auto Parts Factory
                      
                      $
                      4,000Average
                      
                      $
                      4,740





Employee
Benefits





As required under certain relevant PRC
laws, the Company participates in the following employee benefits plans: (i)
medical insurance plan; (ii) unemployment insurance plan, and (iii) state
pension plan, all of which are organized by Chinese municipal and provincial
governments (collectively, the "General Employee Benefits"). All of the
Company's employees are entitled to the General Employee Benefits.





Conclusion





The foregoing discussion describes the
compensation objectives and policies which were utilized with respect to our
named executive officers during 2009 and our intended compensation framework for
2010. In the future, as our Board continues to review each element of the
executive compensation program with respect to our named executive officers, the
objectives of our executive compensation program, as well as the methods which
our Board utilizes to determine both the types and amounts of compensation to
award to our named executive officers, may change.





Summary
Compensation Table





The following table sets forth
information with respect to the amounts awarded to, earned by, or paid to, our
principal executive officer for services provided in all capacities to us and
our subsidiaries for the fiscal year ended December 31, 2009.





Summary
Compensation Table





Name and Principal Position
                      
                      Fiscal Year
                      
                      Annual
                        Salary
                      
                      
                      Bonus
                      
                      
                      Stock
                        Awards
                      
                      
                      Option
                        Awards
                      
                      
                      TotalHuacai
      Song
                      
                      2009
                      
                      $
                      4,005
                      
                      
                      $
                      7,319
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      11,324Chief
      Executive Officer
                      
                      2008
                      
                      $
                      4,411
                      
                      
                      $
                      8,088
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      12,499Chenqing
      Luo
                      
                      2009
                      
                      $
                      4,005
                      
                      
                      $
                      5,855
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      9,860Chief
      Financial Officer
                      
                      2008
                      
                      $
                      3,688
                      
                      
                      $
                      6,617
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      10,305





The
following table discloses the cash, equity awards and other compensation earned,
paid or awarded, as the case may be, to each of the Company's Directors during
the fiscal year ended December 31, 2009.





Name
                Positions
                
                Fees Earned or
                  Paid in Cash ($)
                
                
                Option Awards
                  ($)
                
                
                Total ($)Richard
      Khaleel*
                Director
                
                
                50,000
                (1)
                
                
                -
                
                
                
                50,000





*Richard
Khaleel resigned on July 31, 2009.


(1) This
$50,000 amount reflects the payment of $26,667 for Fees Earned in 2009 and
$23,333 for Fees Earned in 2008.





Compensation
to Mr. Khaleel is set forth in more detail in Item 10, above, under the caption
"Compensation of Directors."


27


Board
Compensation Report





The Board has reviewed and discussed
the Compensation Discussion and Analysis with management and, based on such
review and discussions, the Board determines to include the Compensation
Discussion and Analysis in this Annual Report on Form 10-K.





Employment
Agreements





We have not entered into any written
employment or consulting agreement with any of our executive officers, and the
Company is not contractually obligated to pay severance or other enhanced
benefits to executive officers upon termination of their employment (except that
the Company will be obligated to make certain severance payment to the named
executives pursuant to the relevant Chinese labor laws and regulations). Our
named executives serve at the will of our Board. Except for the General Employee
Benefits, our executive officers are not presently entitled to any
company-sponsored benefits plans.





Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.





The following table sets forth certain
information as of May 1, 2010 concerning the beneficial ownership of our common
stock by (i) each person who, to our knowledge, beneficially owns more than 5%
of our common stock; (ii) each of our Directors and executive officers; and
(iii) all of our Directors and executive officers as a group. As of May 13,
2010, we had 79,980,000 outstanding shares of common stock. Under SEC rules, a
person is deemed to be the beneficial owner of securities that he may acquire
within 60 days upon the exercise of warrants or options, or conversion or
exchange of other of our securities. The percent of common stock owned by each
beneficial owner is determined assuming the acquisition by him (but not any
other beneficial owner) of all shares he may acquire within 60 days upon
exercise, conversion of exchange of all derivative securities.





Name and Address
                                        Beneficial Owner(1)
                                      Office, If Any
                                      Title of Class
                                      
                                      Number and Nature of
                                        Beneficial Ownership
                                      
                                      
                                      Percentage of
                                        ClassDirectors and OfficersChenqing
      Luo
                                        #47
      He ping Street Dengbu
                                        Town,
      Yujiang County
                                        JiangXi
      Province, PRC
                                      CFO
                                      Common
      Stock
                                      
                                      
                                      2,756,000
                                      
                                      
                                      
                                      3.45
                                      %Huacai
      Song
                                        #47
      He ping Street Dengbu
                                        Town,
      Yujiang County
                                        JiangXi
      Province, PRC
                                      CEO
                                      Common
      Stock
                                      
                                      
                                      20,670,000
                                      
                                      
                                      
                                      25.84
                                      %All
      officers and Directors as a group
                                        (2
      persons named above)
                                      
                                      
                                      
                                      
                                      23,426,000
                                      
                                      
                                      
                                      29.29
                                      %5%
      Securities HoldersFu
      Xian Mao
                                        No
      888 Xin Jian Alley, Zhan
                                        Qian
      Nan Rd. Yu jiang
                                        District,
      Ying Tang City,
                                        JiangXi
      Province, PRC
                                      
                                      Common
      Stock
                                      
                                      
                                      5,512,000
                                      
                                      
                                      
                                      6.89
                                      %CEDE
      & CO
                                        PO
      BOX 20
                                        Bowling
      Green Station
                                        New
      York, NY 10004
                                      
                                      Common
      Stock
                                      
                                      
                                      32,907,163
                                      
                                      
                                      
                                      41.14
                                      %Yong-ming
      Zhan
                                        No
      35 Diao Ke Alley, Xi
                                        Qing
      Rd, Yu Jiang District
                                        Ying
      Tan City, Jiangxi
                                        Province,
      PRC
                                      
                                      Common
      Stock
                                      
                                      
                                      9.094,800
                                      
                                      
                                      
                                      11.37
                                      %




28


Changes
in Control





We know of no plans or arrangements
that will result in a change of control at our company.





Item
13. Certain Relationships and Related Transactions and Director
Independence.





Transactions
with Related Persons




Under
Item 404 of SEC Regulation S-K, a related person transaction is any
actual or proposed transaction, arrangement or relationship or series of similar
transactions, arrangements or relationships, including those involving
indebtedness not in the ordinary course of business, since the beginning of our
last fiscal year, to which we or our subsidiaries were or are a party, or in
which we or our subsidiaries were or are a participant, in which the amount
involved exceeded or exceeds $120,000 and in which any of our Directors,
nominees for Director, executive officers, beneficial owners of more than 5% of
any class of our voting securities, or any member of the immediate family of any
of the foregoing persons, had or will have a direct or indirect material
interest.





There
were no transactions with any related persons (as that term is defined in Item
404 in Regulation SK) during the fiscal year ended 2009, or any currently
proposed transaction, in which we were or are to be a participant and the amount
involved was in excess of $120,000 and in which any related person had a direct
or indirect material interest.





Director
Independence





The Board of Directors annually
determines the independence of Directors. No Director is considered independent
unless the Board has determined that he or she has no material relationship with
the Company, either directly or as a partner, shareholder, or officer of an
organization that has a material relationship with the Company or otherwise.
Material relationships can include commercial, banking, consulting, legal,
accounting, charitable, and familial relationships, among others.





Independent Directors are Directors
who, in the view of the Board of Directors, are free of any relationship that
would interfere with the exercise of independent judgment. Under NYSE Amex
rules, the following persons are not considered independent:





a.
            a
      Director who is or was employed by the Company or any of its affiliates
      for the current year or any of the past three
  years;


b.
            a
      Director who accepted or who has an immediate family member who accepted
      any compensation from the Company or any of its affiliates in excess of
      $120,000 during any period of twelve consecutive months within the three
      years preceding the determination of independence  (other than
      certain specified types of compensation, including, e.g., compensation for
      Board or Committee service, benefits under a tax-qualified retirement
      plan, or non-discretionary
compensation);


c.
            a
      Director who is a member of the immediate family of an individual who is,
      or has been in any of the past three years, employed by the Company as an
      executive officer;


d.
            a
      Director who is, or has an immediate family member who is, a partner in,
      or a controlling shareholder or an executive officer of, any organization
      to which the Company made, or from which the Company received payments
      (other than those arising solely from investments in the Company's
      securities) that exceed 5% of the organization's consolidated gross
      revenues for that year, or $200,000, whichever is more, in any of the past
      three years;


e.
            a
      Director who is, or has an immediate family member who is employed as an
      executive of another entity where at any time during the most recent three
      fiscal years, any of the Company's executive officers serve on that other
      entity's compensation committee;
and


f.
            a
      Director who is, or has an immediate family member who is, a current
      partner of the Company's outside auditor, or was a partner or employee of
      the Company's outside auditor who worked on the Company's audit at any
      time during any of the past three
years.





Immediate
family includes a person's spouse, parents, children, sibling, mother-in-law,
father-in-law, brother-in-law, sister-in-law, son-in-law, daughter-in-law, and
anyone who resides in such person's home.





The Board
determined that Richard Khaleel is "independent" within the meaning of the
applicable listing standards of the NYSE Amex.  After Mr. Khaleel’s
resignation as a member of the Board of Directors of the Company, we do not have
any independent Directors.





Item
14. Principal Accounting Fees and Services.





Our Board of Directors pre-approved the
engagement of Davis Accounting Group P.C. for all audit and permissible
non-audit services. The Board annually reviews the audit and permissible
non-audit services performed by our principal accounting firm and reviews and
approves the fees charged by our principal accounting firm.


29


During fiscal year 2009, the aggregate
fees which we paid to or were billed by Davis Accounting Group P.C. for
professional services, which only included audit fees, were as follows:





Fiscal
      Year Ended December 31,2009
                  
                  
                  2008Audit
      Fees
                  
                  $
                  147,292.05
                  
                  
                  $
                  43,536.54
                  *Audit-Related
      Fees
                  
                  
                  -
                  
                  
                  
                  -Tax
      Fees
                  
                  
                  -
                  
                  
                  
                  -Other
      Fees
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  147,292.05
                  
                  
                  $
                  43,536.54
  The audit
fees of $147,292.05 are for services provided by the former auditor, Chisholm,
Bierwolf, Nilson & Morrill LLC, for the amount of $51,292.05, and the
current auditor, Davis Accounting Group P.C., for the amount of
$96,000.





(*)The
audit fees of $43,536.54 are for services provided by the former auditor,
Chisholm, Bierwolf, Nilson & Morrill LLC, in 2008.





(1) Fees
for services to perform an audit or review in accordance with generally accepted
auditing standards and services that generally only our independent registered
public accounting firm can reasonably provide, such as the audit of our
consolidated financial statements, the review of the financial statements
included in our quarterly reports on Form 10-Q, and for services that are
normally provided by independent registered public accounting firms in
connection with statutory and regulatory engagements.





(2) Fees,
if any, for assurance and related services that are traditionally performed by
our independent registered public accounting firm, such as audit attest services
not required by statute or regulation, and consultation concerning financial
accounting and reporting standards.





(3) Fees
for tax compliance. Tax compliance generally involves preparation of original
and amended tax returns, claims for refunds and tax payment planning
services.





PART
IV





Item
15. Exhibits and Financial Statements Schedules





Exhibit
      No.
              Description
      of Exhibit2.1
              Agreement
      and Plan of Merger, dated October 1, 2007, by and between the Company,
      VLLA Merger Sub, Inc., Guoxi Holding Limited and the shareholders of Guoxi
      Holding Limited. (incorporated herein by reference to Exhibit 10.1 of the
      Company's current report on Form 8-K, filed October 3,
    2007).3.1
              Articles
      of Incorporation (incorporated herein by reference to Exhibit 3.1 to the
      Company's registration statement on Form SB-2, filed September 6,
      2006).3.1.1
              Amended
      and Revised Articles of Incorporation (incorporated herein by reference to
      Exhibit 3.1.1 to the Company's Amended Current Report on Form 8-K/A, filed
      November 9, 2007).3.2
              By-Laws
      (incorporated herein by reference to Exhibit 3.2 of the Company's
      registration statement on Form SB-2, filed September 6,
    2006).10.1
              Affiliate
      Stock Purchase Agreement dated as of August 16, 2007 by and between Olga
      Lenova and Max Time Enterprises, Ltd. (incorporated herein by reference to
      Exhibit 10.1 to the Company's Current Report on Form 8-K, filed August 23,
      2007).10.2
              Amendment
      to Consulting Agreement, dated as of December 6, 2007, between Registrant
      and Jin-Jun Xiong (incorporated herein by reference to Exhibit 10.1 to the
      Company's Current Report on Form S-8, filed December 12,
      2007).10.3
              Amendment
      to Consulting Agreement, dated as of December 6, 2007, between Registrant
      and Yun Ding (incorporated herein by reference to Exhibit 10.2 to the
      Company's Current Report on Form S-8, filed December 12,
      2007).10.4
              Amendment
      to Consulting Agreement, dated as of December 6, 2007, between Registrant
      and Jiao-Mei Wu (incorporated herein by reference to Exhibit 10.3 to the
      Company's Current Report on Form S-8, filed December 12,
      2007).10.5
              Amendment
      to Consulting Agreement, dated as of December 6, 2007, between Registrant
      and Shuang-Hua Xu (incorporated herein by reference to Exhibit 10.4 to the
      Company's Current Report on Form S-8, filed December 12,
      2007).10.6
              Exclusive
      Distribution Right Agreement, dated January 17, 2008, between the Company
      and Wulateqianqi XiKai Mining Co., Ltd. (incorporated herein by reference
      to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed January
      22, 2008).10.7
              Form
      of sales agreement (Contract No. 2008 ST 0001), dated as of February 22,
      2008. (incorporated herein by reference to Exhibit 10.1 to the Company's
      Current Report on Form 8-K, filed February 25,
  2008).


30





10.8
              Form
      of sales agreement (Contract No. 2008 ST 0002), dated as of February 22,
      2008. (incorporated herein by reference to Exhibit 10.2 to the Company's
      Current Report on Form 8-K, filed February 25, 2008).10.9
              Form
      of sales agreement (Contract No. 2008 ST 0004), dated as of February 27,
      2008. (incorporated herein by reference to Exhibit 10.1 to the Company's
      Current Report on Form 8-K, filed February 27, 2008).10.10
              Form
      of sales agreement (Contract No. 2008 ST 0005), dated as of February 29,
      2008. (incorporated herein by reference to Exhibit 10.1 to the Company's
      Current Report on Form 8-K, filed March 3, 2008).10.11
              Term
      Note, dated February 20, 2008, from the Company to Wulatequianqi XiKai
      Mining Co., Ltd. (incorporated herein by reference to Exhibit 10.1 to the
      Company's Current Report on Form 8-K, filed March 10,
    2008).10.12
              Agreement
      between Richard E. Khaleel and Jade Art Group Inc., dated April 15, 2008
      (incorporated herein by reference to Exhibit 10.1 to the Company's Current
      Report on Form 8-K, filed April 21, 2008).14.1
              Code
      of Ethics.16.1
              Letter
      of Moore & Associates Chartered to the Securities and Exchange
      Commission pursuant to the requirements of Item 304(a)(3) of Regulation
      S-B. (incorporated herein by reference to Exhibit 16.1 to the Company's
      Current Report on Form 8-K, filed November 16, 2007).21*
              Subsidiaries
      of the Registrant.31.1*
              Certification
      of Chief Executive Officer required by Rule 13a-14(a) under the Exchange
      Act.31.2*
              Certification
      of Chief Financial Officer required by Rule 13a-14(a) under the Exchange
      Act.32.1*
              Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of Sarbanes-Oxley Act of 2002.32.2*
              Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of Sarbanes-Oxley Act of
  2002.




31


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





Jade
      Art Group Inc.By:
                /s/ Huacai SongHuacai
      SongChief
      Executive Officer (Principal Executive Officer)Date:
      May 17, 2010





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Company in the capacities
and on the dates indicated.




Each
person whose signature appears below hereby authorizes Huacai Song as
attorneys-in-fact to sign on his behalf, individually, and in each capacity
stated below, and to file all amendments and/or supplements to this annual
report on Form 10-K.




Signature
              
              Capacity
              
              Date/s/ Huacai Song
              
              Chief
      Executive Officer and Director
              
              May
      17, 2010Huacai
      Song
              
              (Principal
      Executive Officer)/s/Chenqing Luo
              
              Chief
      Financial Officer (Principal Financial
              
              May
      17, 2010Chenqing
      Luo
              
              Officer
      and Principal Accounting Officer)




32


JADE ART
GROUP INC.





CONSOLIDATED
FINANCIAL STATEMENTS





FOR THE
YEARS ENDED





DECEMBER
31, 2009 AND 2008


33


CONTENTS





PAGEREPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                F-1CONSOLIDATED
      BALANCE SHEETS
                F-4CONSOLIDATED
      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                F-5CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' EQUITY
                F-6CONSOLIDATED
      STATEMENTS OF CASH FLOWS
                F-7NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS
                F-8




34


JADE
ART GROUP, INC. AND SUBSIDIARIES


INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2009, AND 2008





Report
      of Registered Independent Public Accounting Firm - 2009
                F-2Report
      of Registered Independent Public Accounting Firm - 2008
                F-3Consolidated
      Financial Statements-Consolidated
      Balance Sheets as of December 31, 2009, and 2008
                F-4Consolidated
      Statements of Operations and Comprehensive Income for the Years Ended
      December 31, 2009, and 2008
                F-5Consolidated
      Statements of Stockholders’ Equity for the Years Ended December 31, 2009,
      and 2008
                F-6Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2009, and
      2008
                F-7Notes
      to Consolidated Financial Statements December 31, 2009, and
      2008
                F-8




F-1


REPORT
OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM - 2009





To the
Board of Directors and Stockholders of


Jade Art
Group, Inc.:





We have
audited the accompanying consolidated balance sheet of Jade Art Group Inc. (a
Nevada corporation) and subsidiaries as of December 31, 2009, and the related
consolidated statements of operations and comprehensive income, stockholders’
equity, and cash flows for the year then ended.  These consolidated
financial statements are the responsibility of the Company’s management. 
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America).  Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material
misstatement.  The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.  Our
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.  Accordingly, we
express no such opinion.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audit provides a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Jade Art Group Inc. and
subsidiaries as of December 31, 2009, and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.





Respectfully
submitted,





/s/ Davis
Accounting Group P.C.





Cedar
City, Utah,


April 12,
2010.


F-2


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 The Board
of Directors and Shareholders
 Jade Art
Group, Inc. (formerly Vella Productions, Inc.)
 Yujiang
County, Jiangxi Province, P.R. of China 335200
 
 We have
audited the accompanying consolidated balance sheet of Jade Art Group, Inc. (formerly Vella
Productions, Inc.) as of December 31, 2008, and the related consolidated
statement of operations and comprehensive income, stockholders' equity (deficit)
and cash flows for the year ended December 31, 2008. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our
audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Jade Art Group, Inc. (formerly
Vella Productions, Inc.) as of December 31, 2008, and the results of their
operations and their cash flows for the year ended December 31, 2008 in
conformity with accounting principles generally accepted in the United States of
America.
 
 
 
 
 Chisholm
Bierwolf, Nilson & Morrill LLC
 Bountiful,
Utah
 May 15,
2009
  F-3




JADE
ART GROUP INC. AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 AS
OF DECEMBER 31, 2009, AND 2008
  2009
                              
                              
                              2008ASSETSCurrent
      Assets:Cash
      and cash equivalents
                              
                              $
                              147,392
                              
                              
                              $
                              68,956Accounts
      receivable -Trade
                              
                              
                              7,752,004
                              
                              
                              
                              1,477,770Other
                              
                              
                              -
                              
                              
                              
                              19,014Less
      - Allowance for doubtful accounts
                              
                              
                              (250,000
                              )
                              
                              
                              -Total
      accounts receivable
                              
                              
                              7,502,004
                              
                              
                              
                              1,496,784Total
      current assets
                              
                              
                              7,649,396
                              
                              
                              
                              1,565,740Property
      and Equipment:Office
      furniture and equipment
                              
                              
                              6,526
                              
                              
                              
                              6,526Less
      - Accumulated depreciation
                              
                              
                              (1,825
                              )
                              
                              
                              (584
                              )Net
      property and equipment
                              
                              
                              4,701
                              
                              
                              
                              5,942Other
      Assets:Acquisition
      deposit
                              
                              
                              8,787,089
                              
                              
                              
                              -Exclusive
      jade distribution rights, net
                              
                              
                              63,108,842
                              
                              
                              
                              65,978,151Total
      other assets
                              
                              
                              71,895,931
                              
                              
                              
                              65,978,151Total
      Assets
                              
                              $
                              79,550,028
                              
                              
                              $
                              67,549,833LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      Liabilities:Notes
      payable - Related parties
                              
                              $
                              -
                              
                              
                              $
                              2,264,851Accounts
      payable - Trade and accrued liabilities
                              
                              
                              994,050
                              
                              
                              
                              622,208Advances
      from customers
                              
                              
                              -
                              
                              
                              
                              146,314Taxes
      payable
                              
                              
                              2,050,385
                              
                              
                              
                              1,268,617Total
      current liabilities
                              
                              
                              3,044,435
                              
                              
                              
                              4,301,990Total
      liabilities
                              
                              
                              3,044,435
                              
                              
                              
                              4,301,990Commitments
      and ContingenciesStockholders'
      Equity:Common
      stock, par value $0.001 per share; 500,000,000 shares authorized;
      79,980,000 shares issued and outstanding in 2009 and 2008
                              
                              
                              79,980
                              
                              
                              
                              79,980Additional
      paid-in capital
                              
                              
                              3,311,330
                              
                              
                              
                              3,229,016Statutory
      earnings reserve
                              
                              
                              3,678,080
                              
                              
                              
                              2,008,152Accumulated
      other comprehensive income
                              
                              
                              1,106,581
                              
                              
                              
                              1,099,231Retained
      earnings
                              
                              
                              68,329,622
                              
                              
                              
                              56,831,464Total
      stockholders' equity
                              
                              
                              76,505,593
                              
                              
                              
                              63,247,843Total
      Liabilities and Stockholders' Equity
                              
                              $
                              79,550,028
                              
                              
                              $
                              67,549,833
 The
accompanying notes to consolidated financial statements are
 an
integral part of these consolidated balance sheets.
 F-4
  JADE
ART GROUP INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 AND
COMPREHENSIVE INCOME
 FOR
THE YEARS ENDED DECEMBER 31, 2009, AND 2008
 
 2009
                              
                              
                              2008Sales,
      net
                              
                              $
                              25,309,675
                              
                              
                              $
                              30,537,079Cost
      of Goods Sold
                              
                              
                              4,710,565
                              
                              
                              
                              5,225,273Gross
      profit
                              
                              
                              20,599,110
                              
                              
                              
                              25,311,806Operating
      Expenses:Selling,
      general and administrative expenses
                              
                              
                              1,869,940
                              
                              
                              
                              2,806,341Total
      operating expenses
                              
                              
                              1,869,940
                              
                              
                              
                              2,806,341Income
      From Continuing Operations
                              
                              
                              18,729,170
                              
                              
                              
                              22,505,465Other
      Income (Expense):Interest
      income
                              
                              
                              8,153
                              
                              
                              
                              132,087Interest
      (expense)
                              
                              
                              (5,418
                              )
                              
                              
                              (421,507
                              )Loss
      on forgiveness of debt
                              
                              
                              -
                              
                              
                              
                              (132,087
                              )Total
      other income (expense)
                              
                              
                              2,735
                              
                              
                              
                              (421,507
                              )Income
      Before Income Taxes From Continuing Operations
                              
                              
                              18,731,905
                              
                              
                              
                              22,083,958Provision
      for Income Taxes
                              
                              
                              (5,563,819
                              )
                              
                              
                              (6,693,841
                              )Net
      Income From Continuing Operations
                              
                              
                              13,168,086
                              
                              
                              
                              15,390,117Discontinued
      Operations, net of taxIncome
      from woodcarving operations, net of tax
                              
                              
                              -
                              
                              
                              
                              96,751Income
      from transfer of woodcarving operations, net of tax
                              
                              
                              -
                              
                              
                              
                              55,322,615Net
      Income From Discontinued Operations
                              
                              
                              -
                              
                              
                              
                              55,419,366Net
      Income
                              
                              $
                              13,168,086
                              
                              
                              $
                              70,809,483Comprehensive
      Income:Foreign
      currency translation adjustment
                              
                              
                              7,350
                              
                              
                              
                              895,967Total
      Comprehensive Income
                              
                              $
                              13,175,436
                              
                              
                              $
                              71,705,450Earnings
      Per Common Share:Earnings
      per common share - BasicIncome
      from continuing operations
                              
                              $
                              0.16
                              
                              
                              $
                              0.19Income
      from discontinued operations, net of tax
                              
                              
                              -
                              
                              
                              
                              0.69Net
      income
                              
                              $
                              0.16
                              
                              
                              $
                              0.88Earnings
      per common share - DilutedIncome
      from continuing operations
                              
                              $
                              0.16
                              
                              
                              $
                              0.19Income
      from discontinued operations, net of tax
                              
                              
                              -
                              
                              
                              
                              0.69Net
      income
                              
                              $
                              0.16
                              
                              
                              $
                              0.88Weighted
      Average Number of Common SharesOutstanding
      - Basic
                              
                              
                              79,980,000
                              
                              
                              
                              79,980,000Weighted
      Average Number of Common SharesOutstanding
      - Diluted
                              
                              
                              79,980,000
                              
                              
                              
                              80,665,131
  The
accompanying notes to consolidated financial statements are
 an
integral part of these consolidated statements.
 F-5
  JADE
ART GROUP INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
 FOR
THE YEARS ENDED DECEMBER 31, 2009, AND 2008
 
 AccumulatedAdditional
                      
                      
                      Statutory
                      
                      
                      Retained
                      
                      
                      OtherCommon
      stock
                      
                      
                      Paid-in
                      
                      
                      Earnings
                      
                      
                      Earnings
                      
                      
                      ComprehensiveDescription
                      
                      Shares
                      
                      
                      Amount
                      
                      
                      Capital
                      
                      
                      Reserve
                      
                      
                      (Deficit)
                      
                      
                      Income
                      
                      
                      TotalBalance
      - December 31, 2007
                      
                      
                      79,980,000
                      
                      
                      $
                      79,980
                      
                      
                      $
                      2,204,172
                      
                      
                      $
                      590,266
                      
                      
                      $
                      (12,560,133
                      )
                      
                      $
                      203,264
                      
                      
                      $
                      (9,482,451
                      )Valuation
      of warrants granted
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      959,366
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      959,366Valuation
      of stock options granted
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      65,478
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      65,478Statutory
      earnings reserve
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      2,008,152
                      
                      
                      
                      (2,008,152
                      )
                      
                      
                      -
                      
                      
                      
                      -Distribution
      of a subsidiary
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (590,266
                      )
                      
                      
                      590,266
                      
                      
                      
                      -
                      
                      
                      
                      -Foreign
      currency translation
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      895,967
                      
                      
                      
                      895,967Net
      income for the period
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      70,809,483
                      
                      
                      
                      -
                      
                      
                      
                      70,809,483Balance
      - December 31, 2008
                      
                      
                      79,980,000
                      
                      
                      
                      79,980
                      
                      
                      
                      3,229,016
                      
                      
                      
                      2,008,152
                      
                      
                      
                      56,831,464
                      
                      
                      
                      1,099,231
                      
                      
                      
                      63,247,843Valuation
      of warrants granted
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      43,982
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      43,982Valuation
      of stock options granted
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      38,332
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      38,332Statutory
      earnings reserve
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,669,928
                      
                      
                      
                      (1,669,928
                      )
                      
                      
                      -
                      
                      
                      
                      -Foreign
      currency translation
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      7,350
                      
                      
                      
                      7,350Net
      income for the period
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      13,168,086
                      
                      
                      
                      -
                      
                      
                      
                      13,168,086Balance
      - December 31, 2009
                      
                      
                      79,980,000
                      
                      
                      $
                      79,980
                      
                      
                      $
                      3,311,330
                      
                      
                      $
                      3,678,080
                      
                      
                      $
                      68,329,622
                      
                      
                      $
                      1,106,581
                      
                      
                      $
                      76,505,593
  The
accompanying notes to consolidated financial statements are
 an
integral part of these consolidated statements.
 F-6
  JADE
ART GROUP INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE YEARS ENDED DECEMBER 31, 2009, AND 2008
 
 2009
                    
                    
                    2008Cash
      Flows Provided by Operating Activities:Net
      income from continuing operations
                    
                    $
                    13,168,086
                    
                    
                    $
                    15,390,117Adjustments
      to reconcile net income to net cash provided by operating
      activities:Net
      income from discontinued operations
                    
                    
                    -
                    
                    
                    
                    55,419,366Income
      on transfer of woodcarving operations
                    
                    
                    -
                    
                    
                    
                    (55,322,615
                    )Depreciation
      and amortization
                    
                    
                    2,870,550
                    
                    
                    
                    2,863,482Allowance
      for doubtful accounts
                    
                    
                    250,000
                    
                    
                    
                    -Non-cash
      expense for warrants and options issued
                    
                    
                    82,314
                    
                    
                    
                    1,024,844Loss
      on forgiveness of interest receivable
                    
                    
                    -
                    
                    
                    
                    132,087Changes
      in net assets and liabilities-Accounts
      receivable
                    
                    
                    (6,255,220
                    )
                    
                    
                    (1,205,066
                    )Related
      party receivables
                    
                    
                    -
                    
                    
                    
                    (401,040
                    )Inventories
                    
                    
                    -
                    
                    
                    
                    (95,631
                    )Accounts
      payable - Trade and accrued liabilities
                    
                    
                    371,842
                    
                    
                    
                    597,751Other
      payables
                    
                    
                    -
                    
                    
                    
                    352,960Advances
      from customers
                    
                    
                    (146,314
                    )
                    
                    
                    87,125Taxes
      payable
                    
                    
                    781,768
                    
                    
                    
                    937,576Net
      Cash Provided by Operating Activities
                    
                    
                    11,123,026
                    
                    
                    
                    19,780,956Cash
      Flows Used In Investing Activities:Payment
      of acquisition deposit
                    
                    
                    (8,787,089
                    )
                    
                    
                    -Purchase
      of distribution rights
                    
                    
                    -
                    
                    
                    
                    (8,806,166
                    )Cash
      paid for notes receivable
                    
                    
                    -
                    
                    
                    
                    (14,652,653
                    )Cash
      received from notes receivable
                    
                    
                    -
                    
                    
                    
                    14,652,653Purchases
      of property and equipment
                    
                    
                    -
                    
                    
                    
                    (33,353
                    )Net
      Cash Used in Investing Activities
                    
                    
                    (8,787,089
                    )
                    
                    
                    (8,839,519
                    )Cash
      Flows Used In Financing Activities:Proceeds
      from loans from related party
                    
                    
                    -
                    
                    
                    
                    3,000,000Payment
      of loans from related party
                    
                    
                    -
                    
                    
                    
                    (3,000,000
                    )Proceeds
      from notes payable
                    
                    
                    -
                    
                    
                    
                    7,000,000Payment
      on notes payable
                    
                    
                    -
                    
                    
                    
                    (7,000,000
                    )Notes
      payable - Payments to related parties
                    
                    
                    (2,264,851
                    )
                    
                    
                    (12,069,649
                    )Net
      Cash Used in Financing Activities
                    
                    
                    (2,264,851
                    )
                    
                    
                    (12,069,649
                    )Effect
      of Exchange Rate Changes on Cash
                    
                    
                    7,350
                    
                    
                    
                    895,965Net
      Increase (Decrease) in Cash and Cash Equivalents
                    
                    
                    78,436
                    
                    
                    
                    (232,247
                    )Cash
      and Cash Equivalents - Beginning of Period
                    
                    
                    68,956
                    
                    
                    
                    301,203Cash
      and Cash Equivalents - End of Period
                    
                    $
                    147,392
                    
                    
                    $
                    68,956Supplemental
      Disclosure of Cash Flow Information:Cash
      paid during the periods for:Interest
                    
                    $
                    5,418
                    
                    
                    $
                    421,507Income
      taxes
                    
                    $
                    4,782,051
                    
                    
                    $
                    5,805,371Non-Cash
      Transactions:Options
      and warrants granted for services
                    
                    $
                    82,314
                    
                    
                    $
                    1,024,844
  The
accompanying notes to consolidated financial statements are
 an
integral part of these consolidated statements.
  F-7





JADE
ART GROUP INC. & SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
31, 2009 AND 2008





(1)           Summary
of Significant Accounting Policies




Basis
of Presentation and Organization




Jade Art
Group Inc. (the “Company” or “Jade Art”) was incorporated under the laws of the
State of Nevada on September 30, 2005, as Vella Productions, Inc.
(“Vella”).  The initial business plan was to provide integrated brand
management services to established and start-up companies in the food
industry.  Such services included the marketing, distribution, and
sales of organic and natural food products to retail and foodservice outlets
worldwide.  Prior to the Merger Transaction, described below, the
business operations of the Company were limited to development stage activities
with respect to an exclusive distribution and marketing agreement with Spike
Tea, Inc. for the development of a proprietary line of six blends of tea and
caffeine-free hot drinks for distribution to the retail and foodservice
sectors.  For the period from inception (September 30,
2005) through December 31, 2007, the Company generated no
revenues.





In
September 2006, the Company filed a Registration Statement on Form SB-2 with the
Securities and Exchange Commission (“SEC”) to register 20,000,000 shares of its
common stock, par value $0.001 per share, to raise proceeds of up to $400,000 in
the public markets.  The Registration Statement was declared effective
by the SEC on November 2, 2006.





On
October 1, 2007, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement") with its wholly owned subsidiary, VELLA Merger Sub, Inc.,
and each of Guoxi Holding Limited ("GHL"), a British Virgin Islands holding
company founded on July 28, 2006, Hua-Cai Song, Fu-Lan Chen, Mei-Ling Chen,
Chen-Qing Luo, Mei-Qing Zhang, Song-Mao Cai, Shenzhen Hua Yin Guaranty &
Investment Company Limited, Top Good International Limited, Total Giant Group
Limited, Total Shine Group Limited, Sure Believe Enterprises Limited, Think Big
Trading Limited, Huge Step Enterprises Limited, and Billion Hero Investments
Limited.


Pursuant
to the Merger Agreement, GHL merged with VELLA Merger Sub, Inc., with GHL
identified as the surviving entity (the “Merger Transaction”).  GHL
was the sole stockholder of 100 percent of the capital stock of the operating
entity known as Jiangxi XiDa (“Jiangxi XiDa” and formerly known as Jiangxi Xi
Cheong Lacquer, Inc.).  Jiangxi XiDa was incorporated under the laws
of the People’s Republic of China (“PRC”) on December 4, 2006, and is located in
Yujiang, Jiangxi Province, PRC.





At the
time of the Merger Transaction, Jiangxi XiDa was engaged in the production of
traditional art products, including religious woodcut lacquer, woodcut decorated
furniture, and woodcut decorations used in buildings and for
display.  As a result of the Merger Transaction, GHL became a wholly
owned subsidiary of the Company, which, in turn, made the Company the indirect
owner of Jiangxi XiDa.  Under the Merger Agreement, in exchange for
surrendering their shares in GHL, the GHL stockholders received an aggregate of
(i) 68,900,000 newly issued shares of the Company's common stock, par value
$.001 per share, and (ii) $14,334,500, in the form of promissory notes resulting
from declared dividends, payable on or before the first year anniversary of the
Merger Transaction.  Such consideration, including participation in
the promissory notes, was distributed pro rata among the GHL stockholders in
accordance with their respective ownership interests in GHL immediately before
the completion of the Merger Transaction.  Based on the consent of Jade
Art’s Board of Directors, and all of the GHL stockholders, the due date for
payment of the promissory notes was later extended to March 31,
2009.  Subsequent to December 31, 2008, the Company again amended the
due date of the promissory notes to March 31, 2010.  The amendment
included the calculation of accrued interest payable at a rate of 4 percent to
be applied to the final amount owed of $903,074.  During the year
ended December 31, 2008, the Company paid $12,069,649 in principal related to
the promissory notes.  In addition, during the year ended December 31,
2009, the Company paid an additional $2,264,851 in principal payments on the
promissory notes with accrued interest of $5,418.  As such, as of
December 31, 2009, the Company had paid off all of its obligations related to
the promissory notes under the Merger Agreement.





Under
accounting principles generally accepted in the United States, the share
exchange completed under the Merger Agreement was considered as a capital
transaction in substance, rather than a business combination.  As
such, GHL is considered to have acquired the Company by reverse
merger.  The reverse merger has been recorded as a recapitalization of
the Company, with the net assets of the Company and GHL and its wholly owned
subsidiary (Jiangxi XiDa) brought forward at their historical
bases.  The costs associated with the reverse merger were expensed as
incurred.  Accordingly, the accompanying consolidated financial
statements for the year ended December 31, 2008, present the historical
operations of Jiangxi XiDa, as a discontinued operation, through February 20,
2008, the date of the transfer of Jiangxi XiDa under the Distribution Rights
Agreement, described below.


F-8




On
November 8, 2007, the Company amended and restated its Articles of Incorporation
to change the name of the entity to Jade Art Group Inc.  In addition,
on January 11, 2008, the Company formed a new wholly owned Chinese subsidiary,
JiangXi SheTai Jade Industrial Company Limited (“JST”), to engage in the
processing and sale of jadeite and jade.  JST is a wholly owned
subsidiary of GHL.




On
January 17, 2008, the Company entered into an Exclusive Distribution Rights
Agreement (the "Exclusive Jade Distribution Rights Agreement") with Wulateqianqi
XiKai Mining Co., Ltd. ("XiKai Mining").  Under the terms of the
Exclusive Jade Distribution Rights Agreement, XiKai Mining agreed to sell to the
Company 90 percent of the raw jade material produced from its SheTai Jade
mine, located in Wulateqianqi, PRC, for a period of 50 years.  In
exchange for the Exclusive Jade Distributions Rights, the Company agreed to pay
RMB 60 million (approximately USD$8.8 million) to XiKai Mining by March 31,
2009, and to transfer to XiKai Mining 100 percent of its ownership interest in
the Company’s woodcarving operations, which were contained and conducted by
Jiangxi XiDa.  The transfer of Jiangxi XiDa to XiKai Mining under the
Exclusive Jade Distribution Rights Agreement was completed on February 20,
2008.




The
Exclusive Jade Distribution Rights Agreement further provides that, if the
Company requests, production of jade by XiKai Mining will be no less than 40,000
metric tons per year (the "Minimum Commitment"), with an initial average cost
per ton to be paid by the Company of not more than RMB 2,000 (approximately
$290).  The cost per ton paid by Jade Art is subject to renegotiation
every five years during the term of the Exclusive Jade Distribution Rights
Agreement, with adjustments not to exceed 10 percent of the cost for the
immediately preceding five-year period.  Failure by XiKai Mining to
supply raw jade material ordered by the Company within the Minimum Commitment
level during any of the initial five years of the Exclusive Jade Distribution
Rights Agreement entitles the Company to payment from XiKai Mining of RMB 18,000
(approximately $2,630) for each ton ordered by but not supplied to the Company
during any such fiscal year.




The
Company’s approved current scope of business operations includes the production
and sale of jade and related products.  For the period from the date
of completion of the Exclusive Jade Distribution Rights Agreement through
December 31, 2009, the principal operations of the Company have been the
distribution and sale of raw jade.





Accounting
Method




The
accompanying consolidated financial statements were prepared using the accrual
method of accounting.  Jade Art changed its fiscal year-end from July
31 to December 31 in 2007.




Principles
of Consolidation




The
accompanying consolidated financial statements of the Company and its wholly
owned subsidiaries were prepared in accordance with accounting principles
generally accepted in the United States of America (“US GAAP”), and include the
assets, liabilities, revenues, expenses, and cash flows of all
subsidiaries.  All significant intercompany balances, transactions,
and cash flows have been eliminated in consolidation.


F-9




Foreign
Currency Translation




The
Company accounts for foreign currency translation pursuant to ASC Topic
830, Foreign Currency Matters (formerly SFAS No. 52, Foreign
Currency Translation).  The functional currency of Jade Art is the
Chinese Yuan Renminbi (“RMB”).  Under ASC Topic 830-30, all
consolidated assets and liabilities are translated into United States Dollars
using the current exchange rate in effect at the end of each fiscal
period.  The currency exchange rates used by the Company as of
December 31, 2009, and 2008, to translate Chinese RMB into United States
Dollars were 6.837:1 and 6.835:1, respectively.  Consolidated revenues
and expenses were translated using the average exchange rates prevailing
throughout the years 2009 and 2008, which amounted to 6.841:1 and 7.067:1,
respectively.  Translation adjustments are included in other
accumulated comprehensive income (loss) in the accompanying consolidated balance
sheets.




Cash
and Cash Equivalents




For
purposes of reporting within the consolidated statements of cash flows, the
Company considers all cash on hand, cash accounts not subject to withdrawal
restrictions or penalties, and all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.




Accounts
Receivable




The
Company extends unsecured credit to its customers in the ordinary course of
business but mitigates the associated risks by performing credit checks and
actively pursuing past due accounts. An allowance for doubtful accounts is
established and recorded based on management’s assessment of the credit history
with the customer and current relationships with them.




The
Company makes provision for bad debts based on an assessment of the
recoverability of accounts receivable.  Specific provisions are
applied to related-party receivables and third-party receivables where events or
changes in circumstances indicate that the balances may not be
collectible.  Based on management’s review of the accounts receivable,
an allowance of $250,000 was established as of December 31, 2009.  No
allowance was deemed necessary by management as of December 31,
2008.




Property
and Equipment




Property
and equipment is stated at cost.  Betterments and improvements are
capitalized and depreciated over their estimated useful
lives.  Leaseholds are depreciated over the lesser of lease life or
useful life.  Repairs and maintenance expenditures are charged to
operations as incurred.  When assets are disposed of, the cost and
related accumulated depreciation (the net book value of the assets) are
eliminated, and any resulting gain or loss is reflected in
operations.  Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the related
assets.  The estimated useful lives are as follows:




Office
furniture and
equipment                                                     5
years




Revenue
Recognition




The
Company recognizes revenues when goods are shipped, 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.  Typical shipment terms for all customers are FOB shipping
point.  Goods are considered shipped and delivered when a customer’s
truck picks up goods at the finished goods inventory
location.


F-10




Fair
Value of Financial Instruments





The
Company has adopted ASC Topic 820, Fair Value Measurements and
Disclosures, (formerly SFAS No.157) which defines fair value, establishes
a framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements.  It does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the
information.





Level
      1 inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active markets.Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial instrument.Level
      3 inputs to valuation methodology are unobservable and significant to the
      fair measurement.





The
carrying amounts reported in the accompanying consolidated balance sheets for
the cash and cash equivalents, receivables and current liabilities each qualify
as financial instruments and are a reasonable estimate of fair value because of
the short period of time between the origination of such instruments and their
expected realization and their current market rate of interest.  The
carrying value of notes payable approximates fair value because negotiated terms
and conditions are consistent with current market rates as of December 31, 2009,
and 2008, respectively.





Earnings
per share




Basic
earnings per share is computed by dividing the net income attributable to the
common stockholders by the weighted average number of shares of common stock
outstanding during the periods.  Diluted earnings per share is
computed similar to basic earnings per share except that the denominator
includes the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if these additional common
shares were dilutive.





Accounting
for Stock-Based Compensation





The
Company uses the fair value recognition provision of FASB ASC Topic
718, Compensation-Stock Compensation (formerly SFAS
123(R)) , which requires the Company to expense the cost of employee
services received in exchange for an award of equity instruments based on the
grant date fair value of such instruments over the vesting period.





The
Company also applies the provisions of FASB ASC Topic 505-50, Equity Based
Payments to Non-Employees (formerly EITF 96-18) to account for
stock-based compensation awards issued to non-employees for
services.  Such awards for services are recorded at either the fair
value of the consideration received or the fair value of the instruments issued
in exchange for such services, whichever is more reliably
measurable.





Impairment
of Long-Lived Assets





In
accordance with FASB ASC Topic 360 (formerly SFAS No. 144), “Impairment or
Disposal of Long-lived Assets,” Jade Art records an impairment of
long-lived assets to be held and used or to be disposed of when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the carrying amount.





Income
Taxes





The
Company accounts for income taxes pursuant to FASB ASC Topic 740, Income Taxes
(formerly SFAS No. 109). Income taxes are provided on an asset and liability
approach for financial accounting and reporting of income taxes. Any tax paid by
subsidiaries during the year is recorded. Current tax is based on the profit or
loss from ordinary activities adjusted for items that are non-assessable or
disallowable for income tax purpose and is calculated using tax rates that have
been enacted or substantively enacted at the balance sheet date. ASC Topic 740
also requires the recognition of deferred tax assets and liabilities for both
the expected impact of differences between the financial statements and the tax
basis of assets and liabilities, and for the expected future tax benefit to be
derived from tax losses and tax credit carryforwards. ASC Topic 740 additionally
requires the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. Realization of deferred tax assets,
including those related to the U.S. net operating loss carryforwards, are
dependent upon future earnings, if any, of which the timing and amount are
uncertain.


F-11




The
Company adopted FASB ASC Topic 740-10-05, Income tax, (formerly FASB
Interpretation No. 48), which provides guidance for recognizing and measuring
uncertain tax positions, it prescribes a threshold condition that a tax position
must meet for any of the benefits of the uncertain tax position to be recognized
in the financial statements.  It also provides accounting guidance on
derecognizing, classification, and disclosure of these uncertain tax
positions.  The Company’s policy on classification of all interest and
penalties related to unrecognized tax is to record such items, if any, as a
component of income tax provisions.





Value
Added Tax





Operations
of Jade Art in the PRC are subject to a value added tax (“VAT”) imposed by the
PRC government on the purchase and sales of goods.  The output VAT is
charged to customers that purchase goods from the Company and the input VAT is
paid when the Company purchases goods from its vendors.  The VAT rate
is 17 percent in general, depending on the types of products purchased and
sold.  The input VAT can be offset against the output
VAT.





Concentrations
of Risk





Foreign
Operations: All of the Company’s operations and operational assets are located
in the PRC.  The Company may be adversely affected by possible
political or economic instability in the PRC.  The effect of these
factors cannot be accurately predicted.





Cash: The
Company’s cash accounts are held in foreign bank accounts which are not insured
by the FDIC.  As of December 31, 2009, and 2008, the Company’s cash
balances, net of outstanding checks, in its foreign bank accounts were $147,392
and $68,956, respectively.





Major
Customers





For the
year ended December 31, 2009, the Company had five major customers (2008 - four)
 that generated sales totaling $25,309,675 or 100% of its total revenues
(2008 - $25,199,945 or 83% of its total revenues).  As of December 31,
2009, the receivables from these customers totaled $7,752,004, representing 100%
of the Company’s accounts receivable (2008 - $1,306,408 - 88% of accounts
receivable).  All of Jade Art’s revenues are derived from sources
within the PRC.  The sales related to major customers were as
follows:


For the Years Ended
                    December 31,Customers
                  
                  2009
                  
                  
                  2008A
                  
                  
                  21
                  %
                  
                  
                  23
                  %B
                  
                  
                  20
                  %
                  
                  
                  21
                  %C
                  
                  
                  20
                  %
                  
                  
                  21
                  %D
                  
                  
                  21
                  %
                  
                  
                  18
                  %E
                  
                  
                  18
                  %
                  
                  
                  -
                  %





Major Supplier





For the
year ended December 31, 2009, and 2008, the Company had one major supplier of
raw jade, XiKai Mining, from which the Company purchased all of its raw
jade.  The total amount of raw jade purchased during the years ended
December 31, 2009, and 2008, from this supplier was $1,841,256 and $2,386,982,
respectively, excluding the amortization of the Exclusive Jade Distribution
Rights, as discussed in Note 5 above.  As of December 31, 2009 and
2008, there were no amounts due to this vendor.  If there were
any interruptions of this source of supply, the Company would have to cease
operations until an alternative source of supply could be found.





Lease
Obligations





All
noncancellable leases with an initial term greater than one year are categorized
as either capital or operating leases.  Assets recorded under capital
leases are amortized according to the same methods employed for property and
equipment or over the term of the related lease, if shorter.


F-12





Comprehensive
Income





The
Company presents comprehensive income in accordance with ASC 220 “Comprehensive
Income” (formerly SFAS No. 130).  ASC 220 states that all items that
are required to be recognized under accounting standards as components of
comprehensive income be reported in the financial statements.  For the
years ended December 31, 2009, and 2008, the only components of comprehensive
income were the net income for the periods, and the foreign currency translation
adjustments.





Use
of Estimates




The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
consolidated assets and liabilities and disclosure of contingent assets and
liabilities as of the dates of the financial statements, and the reported
amounts of consolidated revenues and expenses incurred during the reporting
periods.  The Company bases its estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances.  Actual results could differ from those
estimates.





(2)           Discontinued
Operations





As
discussed in Note 1 to the consolidated financial statements, on January 18,
2008, the Company announced that it would transfer 100 percent of its ownership
interest in Jiangxi XiDa, and pay approximately $8.8 million to XiKai Mining for
the exclusive rights to purchase 90 percent of the raw jade produced by
XiKai Mining’s SheTai jade mine at a predetermined price.  The Company
commenced its purchases and subsequent resale of raw jade in late January
2008.  Jiangxi XiDa held all of the Company’s woodcarving operations,
which constituted all of the Company’s previous business
activities.  The results of operations for the woodcarving business
and the gain resulting from the transfer are presented in the accompanying
consolidated statements of operations and comprehensive income as discontinued
operations.





FASB ASC
845, “Nonmonetary Transactions,” requires that the cost of a non-monetary asset
acquired in exchange for another non-monetary asset be the fair value of the
asset surrendered to acquire it and that a gain or loss be recognized as a
result of the exchange.  The Company’s woodcarving business was
appraised at RMB 430,035,000 (the equivalent of approximately
USD$60,400,000).  The value of the exclusive jade distribution rights
was determined as follows:





Fair
      value of Jiangxi XiDa wood carving (RMB 430,035,000)
                  
                  $
                  60,390,543Cash
      consideration (RMB 60,000,000)
                  
                  
                  8,778,861Foreign
      currency translation
                  
                  
                  (352,962
                  )$
                  68,816,442





The
Exchange Agreement between the two companies was entered into in January 2008;
however, the cash portion of the agreement was not paid until March
2008.  As such, the exchange rate had fluctuated during that time
period.  Therefore, the Company adjusted the amount by
$352,962.  The value allocated to the Exclusive Jade Distribution
Rights acquired in the exchange was $68,816,442, which is being amortized on a
straight-line basis over 25 years.  Management of the Company is of the
opinion that the usefull life of Exclusive Jade Distribution Rights (25 years)
is shorter than the 50-year term of the agreement due to uncertainties regarding
the practical life of the SheTai Jade mine, its production capacity, quality of
jade produced, pricing of jade purchased, and the strength of the Company’s markets in the
PRC.  In addition, the use of the straight-line method of amortization of
the value of Exclusive Jade Distribution Rights is based on managment’s estimate of
failure production requirements and sale of jade.





The net
gain on the transfer of the Company’s woodcarving business was $55,322,615 after
the deduction of the carrying value of the net assets of that
business.  The exchange of the assets and liabilities of Jiangxi XiDa,
and the resulting gain on discontinued operations are as follows:





Fair
      value of Jiangxi XiDa wood carving (RMB 430,035,000)
                  
                  
                  
                  
                  $
                  60,390,543Total
      assets of Jiangxi XiDa
                  
                  
                  (5,151,444
                  )Total
      liabilities of Jiangxi XiDa
                  
                  
                  83,516(5,067,928
                  )Realized
      gain from the exchange of discontinued operations
                  
                  
                  
                  
                  
                  $
                  55,322,615





The
following table summarizes the operating results of the discontinued operations
for Jiangxi XiDa on the date in which it was transferred to XiKai
Mining.


F-13




February
      20,2008Revenues
                      
                      $
                      615,930Operating
      expenses
                      
                      
                      (519,179
                      )Income
      from discontinued operations,Net
      of tax
                      
                      $
                      96,751





(3)           Acquisition
Deposit





On
November 1, 2009, and effective November 15, 2009, the Company entered into an
Investment Agreement with Shenzhen Huanyatong Investment Development Co.,
Ltd.  Per the Investment Agreement, the Company agreed to pay
Huanyatong RMB 60,000,000 (USD $8,787,089) as an acquisition deposit, and
Huanyatong agreed to assist the Company in finding an acquisition
target.  The term of the Investment Agreement is nine months, and was
effective on November 15, 2009.  The acquisition deposit will be
returned to the Company with no interest before August 14, 2010, if there are no
investments or acquisitions presented for consideration as of July 15,
2010.





(3)           Notes
Payable





Pursuant
to the Merger Agreement, the operating company, GHL’s subsidiary, agreed to pay
its stockholders in the amount of $14,334,500, in the form of promissory notes
representing declared dividends, on or before the first anniversary of the
Merger Agreement.  As of December 31, 2008, the Company had paid
$12,069,649 towards the notes.  Based on the consent of Jade Art’s
Board of Directors, and all of the GHL stockholders, the due date for payment of
the promissory notes was extended to March 31, 2009.  Subsequent to
December 31, 2008, the Company again amended the due date of the promissory
notes to March 31, 2010.  The amendment included the calculation of
accrued interest payable at a rate of 4 percent to be applied to the final
amount owed of $903,074.  During the year ended December 31, 2008, the
Company paid $12,069,649 in principal related to the promissory
notes.  In addition, during the year ended December 31, 2009, the
Company paid an additional $2,264,851 in principal payments on the promissory
notes with accrued interest of $5,418.  As such, as of December 31,
2009, the Company had paid off all of its obligations related to the promissory
notes under the Merger Agreement.





During
the first quarter of 2008, the Company received an unsecured loan of $3,000,000
from a stockholder of the Company.  The loan was unsecured, carried an
interest rate of 5 percent, and was due and payable on December 31,
2008.  The amount was used to serve as registered capital for the
wholly owned subsidiary, JST, of the Company to provide working capital for the
subsidiary’s operations.  The principal amount of the loan of
$3,000,000 with interest, in the amount of $139,726, was paid in full on
November 24, 2008.





(4)           Note
Receivable





The
Company extended financial support in 2008 to XiKai Mining, the supplier of 100
percent of the Company’s jade product, in the form of
advances.  During 2008, the Company advanced $14,652,653 to XiKai
Mining.  Per the terms of this receivable agreement, the note carried
an interest rate of 4 percent, commencing on July 1, 2008, and was payable by
December 31, 2008.  Interest was recognized monthly
basis.  During the year ended December 31, 2008, XiKai Mining repaid
the entire principal balance of $14,652,653.  Interest was accrued in
the total amount of $132,087.  The Company forgave the total accrued
interest and recorded the loss on forgiveness of debt as of December 31, 2008,
in the Company’s accompanying consolidated statement of operations and
comprehensive income.  Management of the Company is of the opinion that the
amount advanced to XiKai Mining was related to the commencement of mining
operations for the purchase of raw jade, and not to the transfer of the
woodcarving business.  Considering the short repayment period demonstrated
by XiKai Mining, management of the Company is of the opinion that it has no
further involvement in the operations of XiKai Mining other thatn for the
purchase of raw jade.





(5)           Intangible
Assets




Exclusive
Jade Distribution Rights




The
Company accounts for intangible assets in accordance with ASC Topic 350,
Goodwill and Other Intangible Assets (formerly named as SFAS No. 142, “Goodwill
and Other Intangible Assets,”) which requires that intangible assets that have
indefinite lives not be amortized but instead be tested at least annually for
impairment, or more frequently when events or a change in circumstances indicate
that the asset might be impaired.  For indefinite lived intangible
assets, impairment is tested by comparing the carrying value of the asset to its
fair value and assessing the ongoing appropriateness of the indefinite life
classification.  For intangible assets with a definite life
classification, the Company amortizes the asset over its useful or economic
life, whichever is shorter.  At least annually, the Company performs
an analysis of impairment of the definite life intangible assets.  In
performing this assessment, management considers current market analysis and
appraisal of the asset, along with estimates of future cash
flows.  The Company recognizes impairment losses when undiscounted
cash flows estimated to be generated from long-lived assets are less than the
amount of unamortized assets.  If the Company determines that the
asset has been impaired, a charge to the Company’s statements of operations is
recorded.  At December 31, 2009, and 2008, the Company determined that
there was no impairment to the intangible assets.


F-14





As
discussed in Note 2, the Company transferred its woodcarving operations and
agreed to pay RMB 60 million (approximately $8.8 million) to XiKai
Mining.  In return, the Company received the Exclusive Jade
Distribution Rights, which enable it to purchase 90 percent of the raw jade
produced by XiKai’s SheTai mine at a fixed price for five years, subject to
adjustment every 5 years thereafter.  The woodcarving operations were
appraised as having a fair value of USD$60,400,000 at the time of the Exchange
Agreement.  The appraised value plus the cash payment (approximately
$8.8 million) are the basis of the valuation of the Exclusive Jade Distribution
Rights Agreement.





Intangible
assets consisted of the following as of December 31, 2009, and
2008:




December 31
                          
                          
                          December 312009
                          
                          
                          2008Exclusive
      Jade Distribution Rights
                          
                          $
                          68,816,442
                          
                          
                          $
                          68,816,442Less:
      Accumulated amortization
                          
                          
                          (5,707,600
                          )
                          
                          
                          (2,838,291
                          )Net
      Exclusive Jade Distribution Rights
                          
                          $
                          63,108,842
                          
                          
                          $
                          65,978,151




The
Company has elected to amortize the Exclusive Jade Distribution Rights using the
straight-line method over an economic useful life of 25 years.





Amortization
expense of the Exclusive Jade Distribution Rights has been included in Cost of
Goods Sold as it represents a component of the cost of the jade product acquired
by the Company.  The amortization expense amounted to $2,869,309, and
$2,838,291 for the years ended December 31, 2009, and 2008, respectively. 
See Note 2 for the additional information regarding the useful life of 25 years
for the Exclusive Jade Distribution Rights, and the application of the
straight-line method of amortization.





Future
amortization of the cost of the Exclusive Jade Distribution Rights is as
follows:





Five Year Disclosure2010
                    
                    $
                    2,869,3092011
                    
                    
                    2,869,3092012
                    
                    
                    2,869,3092013
                    
                    
                    2,869,3092014
                    
                    
                    2,869,309Thereafter
                    
                    
                    48,762,297$
                    63,108,842





(6)           Commitments
and Contingencies





Employee
Benefits





As
required under certain relevant PRC laws, the Company participates in the
following employee benefits plans: (i) medical insurance plan; (ii) unemployment
insurance plan, and (iii) state pension plan, all of which are organized by
PRC municipal and provincial governments (collectively, the “General Employee
Benefits”).  The Company is required to contribute a fixed percentage
of payroll costs to the General Employee Benefits scheme to fund the
benefits.  The only obligation of the Company with respect to the plan
is to make the specified contributions.  The Company’s contributions
to the plan for the years ended December 31 2009, and 2008, were $13,820 and
$11,745, respectively.





Lease
Agreement





On
December 10, 2007, the Company entered into a lease agreement with GuoXi Group
located at Yujiang City of Jiangxi Province, PRC for administrative
operations.  The lease has a term of two years and requires monthly
payments of RMB 20,000 (approximately $2,927).  Future minimum
lease payments are as follows:


F-15





Year
                  
                  Amount2010
                  
                  $
                  35,124





Rent
expenses for the years ended December 31, 2009, and 2008, were $35,124 and
$33,960, respectively.  The rent expense was for office space relating
to the management of the operations of the jade distribution business of the
Company.





(7)           Statutory
Earnings Reserve





As
stipulated by the Company Law of the PRC, net income after taxes can only be
distributed as dividends after appropriation has been made for the following:
(i) making up cumulative prior years’ losses, if any; (ii) allocations to the
“reserve fund” of at least 10 percent of income after taxes, as determined under
PRC accounting rules and regulations, until the fund amounts to 50 percent of
the Company’s registered capital; and (iii) allocations to the “enterprise
expansion fund” and “ Staff and worker’s bonus and welfare fund” of at least 10
percent and 5 percent, respectively, if approved in the stockholders’ general
meeting (see Note 6). This regulation was included in the Articles of
Incorporation when the Company was formed and is applied by the
Company.  As of December 31, 2009, and December 31, 2008, the total
reserves of $3,678,080 and $2,008,152 were allocated by the Company,
respectively.





(8)           Common
Stock





The
Company has one class of stock.  The Company has voting common stock
of 500,000,000 shares authorized, par value $0.001 per share, with 79,980,000
shares issued and outstanding as of December 31, 2009, and 2008,
respectively.  Dividends relating to the Merger Transaction of
$2,264,851 and $12,069,649 were evidenced as promissory notes, and paid during
the periods ended December 31, 2009, and 2008, respectively.  No
dividends were declared during the years ended December 31, 2009, and
2008.





On
December 7, 2007, the Company’s Board of Directors approved a 3:1 forward stock
split, in the nature of a share dividend, with respect to the shares of the
Company’s common stock issued and outstanding at the close of business on
December 28, 2007.  The effect of the forward stock split has been
retroactively applied to all prior stock transactions of the
Company.





On April
28, 2008, the Board of Directors of the Company authorized a 1:3 reverse stock
split of its outstanding common stock.  The reverse stock split was
approved by a majority of the Company’s stockholders.  The Company’s
Board of Directors established May 15, 2008, as the effective date for the
reverse stock split.  The effect of the reverse split has been
retroactively applied to all prior stock transactions of the
Company.





(9)           Common
Stock Warrants and Options





Warrants





On
January 17, 2008, the Company granted warrants to purchase 333,333 shares of the
Company’s common stock at a price of $3.24 to its investor relations firm
pursuant to a consulting agreement, which the Company entered into with this
firm.  These warrants can be exercised over a three-year
period.  The consulting expense for these services is recognized on a
straight-line basis over the one-year period of the related consulting contract,
and amounted to $459,366 and $43,982 for the years ended December 31, 2009, and
2008, respectively.  The Company estimated the fair value of warrants
using the Black-Scholes pricing model and recorded the compensation expenses
ratably over the warrants’ vesting period.





The fair
value of each warrant granted has been estimated on the date of grant using the
Black-Scholes pricing model, using the following assumptions:





2009
                  
                  
                  2008Five
      Year Risk Free Interest Rate
                  
                  
                  2.46
                  %
                  
                  
                  2.46
                  %Dividend
      Yield
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %Volatility
                  
                  
                  314
                  %
                  
                  
                  314
                  %Average
      Expected Term (Years to Exercise)
                  
                  
                  3
                  
                  
                  
                  3




F-16


A summary
of the status of warrants granted as of December 31, 2009, was as
follows:


Shares
                
                
                Weighted Average
                  Exercise PriceOutstanding
      at January 1, 2008
                
                
                -
                
                
                
                -Granted
                
                
                333,333
                
                
                $
                3.24Exercised
                
                
                -
                
                
                
                -Forfeited
                
                
                -
                
                
                
                -Expired
                
                
                -
                
                
                
                -Outstanding
      at December 31, 2008
                
                
                333,333
                
                
                $
                3.24Granted
                
                
                -
                
                
                
                -Exercised
                
                
                -
                
                
                
                -Forfeited
                
                
                -
                
                
                
                -Expired
                
                
                -
                
                
                
                -Outstanding
      at December 31, 2009
                
                
                333,333
                
                
                $
                3.24Exercisable
      at December 31, 2009
                
                
                333,333
                
                
                $
                3.24Exercisable
      at December 31, 2008
                
                
                333,333
                
                
                $
                3.24





The
remaining life of the warrants as of December 31, 2009, was 1.04
years.





Options





On April
15, 2008, the Company granted to a member of the Company’s Board of Directors
nonqualified stock options to purchase up to 33,333 shares of the Company’s
common stock, exercisable at a price of $3.45 per share (a price equal to the
closing price per share of the Company’s common stock on April 15, 2008, as
reported by the Over-the-Counter Bulletin Board, post reverse stock
split).  All of the options granted were unexercised, and expired on
the date that the individual resigned from the Board of Directors, which was
July 31, 2009.





(10)         Income
Tax





The
Company has adopted ASC Topic 740, Income Taxes (formerly SFAS No. 109), which
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns.  Under this method, deferred tax
liabilities and assets are determined based on the difference between financial
statements and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse.  Temporary differences between taxable income reported for
financial reporting purposes and income tax purposes are
insignificant.





Components
of deferred tax assets as of December 31, 2009, and 2008, respectively, were as
follows:


December
      31,
                    
                    
                    December
      31,2009
                    
                    
                    2008Net
      operating loss carry forward
                    
                    $
                    -
                    
                    
                    $
                    -Valuation
      allowance
                    
                    
                    -
                    
                    
                    
                    -Net
      deferred tax asset
                    
                    $
                    -
                    
                    
                    $
                    -





The
components of current income tax expense as of December 31, 2009, and 2008,
respectively, were as follows:




December
      31,
                    2009
                  
                  
                  December
      31,
                    2008Domestic
      - Current
                  
                  $
                  -
                  
                  
                  $
                  -Foreign
      – Current
                  
                  
                  5,563,819
                  
                  
                  
                  6,693,841Domestic
      – Deferred
                  
                  
                  -
                  
                  
                  
                  -Foreign
      – Deferred
                  
                  
                  -
                  
                  
                  
                  -Income
      tax expense
                  
                  $
                  5,563,819
                  
                  
                  $
                  6,693,841





The
Company is incorporated in the United State of America, and is subject to U.S.
income taxes if elements of taxable income are realized and recognized in the
reporting periods.  In addition, the Company’s operations are
conducted by a subsidiary located in the PRC, and income derived from such
operations is subject to the income tax laws of that country.


F-17





The
following is a reconciliation of the provision for income taxes at the
prevailing PRC income tax rate to the income taxes reflected in the statement of
operations:





Year Ended
                      December 31,2009
                    
                    
                    Year Ended December
                      31,2008Tax
      expense at statutory PRC rate
                    
                    
                    25
                    %
                    
                    
                    25
                    %Effect
      of non-deductible items
                    
                    
                    5
                    %
                    
                    
                    5
                    %Tax
      expense at actual rate
                    
                    
                    30
                    %
                    
                    
                    30
                    %





Due to
the uncertainty of the deductibility of consulting and professional expense and
other general and administrative expenses incurred during the years ended
December 31, 2009, and 2008, the tax provision did not assume that this expense
would be deductible.  The total income tax expense was $5,563,819 and
$6,693,841 for the years ended December 31, 2009, and 2008,
respectively.





(11)           Recent
Accounting Pronouncements





In March
2008, the FASB issued FASB ASC 815, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
133.”  FASB ASC 815 enhances required disclosures regarding
derivatives and hedging activities, including enhanced disclosures regarding
how:  (a) an entity uses derivative instruments; (b) derivative
instruments and related hedged items are accounted for; and (c) derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows.  Specifically, ASC 815
requires:


·
            disclosure
      of the objectives for using derivative instruments be disclosed in terms
      of underlying risk and accounting
designation;


·
            disclosure
      of the fair values of derivative instruments and their gains and losses in
      a tabular format;


·
            disclosure
      of information about credit-risk-related contingent
    features;


·
            and
      cross-reference from the derivative footnote to other footnotes in which
      derivative-related information is
disclosed.





FASB ASC
815 is effective for fiscal years and interim periods beginning after November
15, 2008.  Earlier application is encouraged.  The
management of Company does not expect the adoption of this pronouncement to have
a material impact on its financial statements.





On May 9,
2008, the FASB issued FASB ASC 105, “The Hierarchy of Generally Accepted
Accounting Principles.”  FASB ASC 105 is intended to improve
financial reporting by identifying a consistent framework, or hierarchy, for
selecting accounting principles to be used in preparing financial statements
that are presented in conformity with U.S. generally accepted accounting
principles (“GAAP”) for nongovernmental entities.





Prior to
the issuance of FASB ASC 105, GAAP hierarchy was defined in the American
Institute of Certified Public Accountants (“AICPA”) Statement on Auditing
Standards (“SAS”) No. 69, “The
Meaning of Present Fairly in Conformity with Generally Accept Accounting
Principles.”  SAS No. 69 has been criticized because it is
directed to the auditor rather than the entity.  ASC 105 addresses
these issues by establishing that the GAAP hierarchy should be directed to
entities because it is the entity (not the auditor) that is responsible for
selecting accounting principles for financial statements that are presented in
conformity with GAAP.





The
sources of accounting principles that are generally accepted are categorized in
descending order as follows:





e.
            FASB
      Statements of Financial Accounting Standards and Interpretations, FASB
      Statement 133 Implementation Issues, FASB Staff Positions, and American
      Institute of Certified Public Accountants (AICPA) Accounting Research
      Bulletins and Accounting Principles Board Opinions that are not superseded
      by actions of the FASB.





f.
            FASB
      Technical Bulletins and, if cleared by the FASB, AICPA Industry Audit and
      Accounting Guides and Statements of
Position.


F-18




g.
            AICPA
      Accounting Standards Executive Committee Practice Bulletins that have been
      cleared by the FASB, consensus positions of the FASB Emerging Issues Task
      Force (EITF), and the Topics discussed in Appendix D of EITF Abstracts
      (EITF D-Topics).





h.
            Implementation
      guides (Q&As) published by the FASB staff, AICPA Accounting
      Interpretations, AICPA Industry Audit and Accounting Guides and Statements
      of Position not cleared by the FASB, and practices that are widely
      recognized and prevalent either generally or in the
    industry.





FASB ASC
105 is effective 60 days following the SEC’s approval of the Public Company
Accounting   Oversight Board amendment to its authoritative
literature.  It is only effective for nongovernmental entities;
therefore, the GAAP hierarchy will remain in SAS 69 for state and local
governmental entities and federal governmental entities.  The
management of Company does not expect the adoption of this pronouncement to have
a material impact on its financial statements.





On May
26, 2008, the FASB issued FASB ASC 944,“Accounting for Financial Guarantee
Insurance Contracts.”  FASB ASC 944 clarifies accounting and
reporting by insurance enterprises, and applies to financial guarantee insurance
contracts issued by insurance enterprises, including the recognition and
measurement of premium revenue and claim liabilities.  It also
requires expanded disclosures about financial guarantee insurance
contracts.





The
accounting and disclosure requirements of FASB ASC 944 are intended to improve
the comparability and quality of information provided to users of financial
statements by creating consistency.  Diversity exists in practice in
accounting for financial guarantee insurance contracts by insurance
enterprises.  That diversity results in inconsistencies in the
recognition and measurement of claim liabilities because of differing views
about when a loss has been incurred.  FASB ASC 944 requires that an
insurance enterprise recognize a claim liability prior to an event of default
when there is evidence that credit deterioration has occurred in an insured
financial obligation.  It also requires disclosure about (a) the
risk-management activities used by an insurance enterprise to evaluate credit
deterioration in its insured financial obligations and (b) the insurance
enterprise’s surveillance or watch list.





FASB ASC
944 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and all interim periods within those fiscal years,
except for disclosures about the insurance enterprise’s risk-management
activities.  Disclosures about the insurance enterprise’s
risk-management activities are effective the first period beginning after
issuance of FASB ASC 944.  Except for those disclosures, earlier
application is not permitted.  The management of Company does not
expect the adoption of this pronouncement to have material impact on its
financial statements.





On May
22, 2009, the FASB issued FASB ASC 958, “Not-for-Profit Entities: Mergers and
Acquisitions.”  FASB ASC 958 is intended to improve the
relevance, representational faithfulness, and comparability of the information
that a not-for-profit entity provides in its financial reports about a
combination with one or more other not-for-profit entities, businesses, or
nonprofit activities.  To accomplish that, this Statement establishes
principles and requirements for how a not-for-profit entity:





e.
            Determines
      whether a combination is a merger or an
  acquisition.


f.
            Applies
      the carryover method in accounting for a
merger.


g.
            Applies
      the acquisition method in accounting for an acquisition, including
      determining which of the combining entities is the
    acquirer.


h.
            Determines
      what information to disclose to enable users of financial statements to
      evaluate the nature and financial effects of a merger or an
      acquisition.





This
Statement also improves the information a not-for-profit entity provides about
goodwill and other intangible assets after an acquisition by amendment to make
it fully applicable to not-for-profit entities.





FASB ASC
958 is effective for mergers occurring on or after December 15, 2009, and
acquisitions for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2009.  Early application is prohibited.  The management of
Company does not expect the adoption of this pronouncement to have material
impact on its financial statements.





On May
28, 2009, the FASB issued FASB ASC 855, “Subsequent
Events.”  FASB ASC 855 establishes general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued or are available to be
issued.  Specifically, FASB ASC 855 provides:





4.
            The
      period after the balance sheet date during which management of a reporting
      entity should evaluate events or transactions that may occur for potential
      recognition or disclosure in the financial
  statements.


F-19





5.
            The
      circumstances under which an entity should recognize events or
      transactions occurring after the balance sheet date in its financial
      statements.


6.
            The
      disclosures that an entity should make about events or transactions that
      occurred after the balance sheet
date.





In
accordance with this Statement, an entity should apply the requirements to
interim or annual financial periods ending after June 15, 2009.  The
adoption of this pronouncement did not have a material impact on the financial
statements of the Company.





In June
2009, the FASB issued FASB ASC 860, “Accounting for Transfers of
Financial Assets.”  FASB ASC 860 is a revision to an existing
pronouncement and will require more information about transfers of financial
assets, including securitization transactions, and where companies have
continuing exposure to the risks related to transferred financial
assets.  It eliminates the concept of a “qualifying special-purpose
entity,” changes the requirements for derecognizing financial assets, and
requires additional disclosures.





This
statement is effective for financial asset transfers occurring after the
beginning of an entity's first fiscal year that begins after November 15,
2009.  The management of Company does not expect the adoption of this
pronouncement to have material impact on its financial statements.





In June
2009, the FASB issued FASB ASC 810, "Amendments to FASB Interpretation
No. 46(R).”  FASB ASC 810 amends certain requirements of this
pronouncement and changes how a company determines when an entity that is
insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated.  The determination of whether a
company is required to consolidate an entity is based on, among other things, an
entity’s purpose and design and a company’s ability to direct the activities of
the entity that most significantly impact the entity’s economic
performance.





This
statement is effective as of the beginning of each reporting entity’s first
annual reporting period that begins after November 15, 2009.  The
management of Company does not expect the adoption of this pronouncement to have
material impact on its financial statements.





In June
2009, the FASB issued FASB ASC 105, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles - a
replacement of FASB Statement No. 162.”  FASB ASC 105
establishes the FASB Accounting Standards Codification (the "Codification") to
become the single official source of authoritative, nongovernmental U.S.
generally accepted accounting principles (“US GAAP”).  The
Codification did not change US GAAP but reorganizes the literature.





FASB ASC
105 is effective for interim and annual periods ending after September 15,
2009.  The adoption of this pronouncement did not have a material
impact on the financial statements of the Company.




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