UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
  
 FORM
20-F


 ̈
              REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
      OF 1934
 
 OR
 
  ̈
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For
the fiscal year ended ______________
  OR
   ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 OR
  x
              SHELL
      COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
 
 Date
of event requiring this shell company report: September 10, 2010
  Commission
file number: 000-53940
  CC
Jewelry Co., Ltd.
 (formerly
Super Champ Group Limited)
 (Exact
name of Registrant as Specified in its Charter)
  British
Virgin Islands
 (Jurisdiction
of Incorporation or Organization)
  186
Pingyang Road, 6th Floor, Taiyuan City, Shanxi, 030006, People’s Republic of
China
 (Address
of Principal Executive Offices)
  Xiaolin
Mao
 Tel:
+0351-5602855 Fax: +0351-7323989
 186
Pingyang Road, 6th Floor, Taiyuan City, Shanxi, 030006, People’s Republic of
China
 (Name,
Telephone, E-mail and/or Facsimile Number and Address of Company Contact
Person)
 
 Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
  Title of Each Class
                  
                  Name of Each Exchange On Which
      RegisteredNone
                  
                  None
  Securities
registered or to be registered pursuant to Section 12(g) of the
Act:
  Ordinary Shares, par value
$0.01 per share
 (Title of
Class)
  Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act:
  None
 (Title of
Class)
  The
number of outstanding shares of each of the issuer’s classes of capital or
common stock as of September 10, 2010 was: 12,000,000 ordinary shares par value
$0.01 per share.
  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
  If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
  Yes  ̈ No
 ̈
  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
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days:
  Yes  ̈ 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 Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
  Yes  ̈ No
 ̈
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
  Large accelerated
filer  ̈
      Accelerated filer  ̈
    Non-accelerated filer x
  Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:
  x
U.S. GAAP  ̈
International Financial Reporting Standards as issued by the International
Accounting
 Standards Board
 ̈
Other  ̈
  If “Other” has been
checked in response to the previous question, indicate by check mark which
financial statement item the registrant has elected to follow: Item 17  ̈
Item 18  ̈
  If this is an annual
report, indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes  ̈ No
 ̈
  
  CC
JEWELRY CO., LTD.
 (formerly
Super Champ Group Limited)
 FORM
20-F SHELL COMPANY REPORT
 TABLE
OF CONTENTS
  PagePART
      IItem 1.
                Identity
      of Directors, Senior Management and Advisors
                2Item 2.
                Offer
      Statistics and Expected Timetable
                3Item 3.
                Key
      Information
                3Item 4.
                Information
      on the Company
                18Item 4A.
                Unresolved
      Staff Comments
                33Item 5.
                Operating
      and Financial Review and Prospects
                34Item 6.
                Directors,
      Senior Management, and Employees
                48Item 7.
                Major
      Shareholders and Related Party Transactions
                51Item 8.
                Financial
      Information
                53Item 9.
                The
      Offer and Listing
                53Item 10.
                Additional
      Information
                54Item 11.
                Quantitative
      and Qualitative Disclosures About Market Risk
                59Item 12.
                Description
      of Securities Other Than Equity Securities
                60PARTIIItem 13.
                Defaults,
      Dividend Arrearages and Delinquencies
                60Item 14.
                Material
      Modifications to the Rights of Security Holders and Use of
      Proceeds
                61Item 15.
                Controls
      and Procedures
                61Item 16.
                Reserved
                61Item 16A.
                Audit
      Committee Financial Expert
                61Item 16B.
                Code
      of Ethics
                61Item 16C.
                Principal
      Accountiing Fees and Services
                61Item 16D.
                Exemptions
      from the Listing Standards for Audit Committees
                61Item 16E.
                Purchases
      of Equity Securities by the Issuer and Affiliated
    Purchasers
                61Item 16F.
                Change
      in Registrant's Certifying Accountant
                61Item 16G.
                Corporate
      Governance
                62PARTIIIItem 17.
                Financial
      Statements
                63Item 18.
                Financial
      Statements
                63Item 19.
                Exhibits
                63
  
  CERTAIN
INFORMATION
  In this
shell company report on Form 20-F, unless otherwise indicated, “we,” “us,”
“our,” the “Company” and “CC Jewelry” refer to CC Jewelry Co., Ltd., formerly
known as Super Champ Group Limited, or Super Champ, a company organized in the
British Virgin Islands, and its subsidiaries, subsequent to the business
combination referred to below. The “business combination” refers to the share
exchange between Super Champ and the shareholders of Square. C Commerce Company
Ltd., or Square C, resulting in the acquisition of all of the outstanding
securities of Square C by Super Champ, which was consummated on September 10,
2010.
  Unless
the context indicates otherwise, all references to “China” refer to the People’s
Republic of China. All references to “Renminbi” or “RMB” are to the legal
currency of the People’s Republic of China and all references to “U.S. dollars,”
“dollars” and “$” are to the legal currency of the United States. This report
contains translations of Renminbi amounts into U.S. dollars at specified rates
solely for the convenience of the reader. We make no representation that the
Renminbi or U.S. dollar amounts referred to in this report could have been or
could be converted into U.S. dollars or Renminbi, as the case may be, at any
particular rate or at all. On September 7, 2010, the cash buying rate announced
by the People’s Bank of China was RMB 6.786 to $1.00.
  FORWARD-LOOKING
STATEMENTS
  This
report contains “forward-looking statements” that represent our beliefs,
projections and predictions about future events. All statements other than
statements of historical fact are “forward-looking statements” including any
projections of earnings, revenue or other financial items, any statements of the
plans, strategies and objectives of management for future operations, any
statements concerning proposed new projects or other developments, any
statements regarding future economic conditions or performance, any statements
of management’s beliefs, goals, strategies, intentions and objectives, and any
statements of assumptions underlying any of the foregoing. Words such as “may”,
“will”, “should”, “could”, “would”, “predicts”, “potential”, “continue”,
“expects”, “anticipates”, “future”, “intends”, “plans”, “believes”, “estimates”
and similar expressions, as well as statements in the future tense, identify
forward-looking statements.
  These
statements are necessarily subjective and involve known and unknown risks,
uncertainties and other important factors that could cause our actual results,
performance or achievements, or industry results, to differ materially from any
future results, performance or achievements described in or implied by such
statements. Actual results may differ materially from expected results described
in our forward-looking statements, including with respect to correct measurement
and identification of factors affecting our business or the extent of their
likely impact, and the accuracy and completeness of the publicly available
information with respect to the factors upon which our business strategy is
based or the success of our business.
  Forward-looking
statements should not be read as a guarantee of future performance or results,
and will not necessarily be accurate indications of whether, or the times by
which, our performance or results may be achieved. Forward-looking statements
are based on information available at the time those statements are made and
management’s belief as of that time with respect to future events, and are
subject to risks and uncertainties that could cause actual performance or
results to differ materially from those expressed in or suggested by the
forward-looking statements. Important factors that could cause such differences
include, but are not limited to, those factors discussed under the headings
“Risk Factors”, “Operating and Financial Review and Prospects” and elsewhere in
this report.
  1
  PART
I
  ITEM 1.
                IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISORS
  1.A.
Directors and Senior Management
  The following table lists the members
of the Company’s board of directors:
  Name
                  
                  Age
                  
                  Position(s)Quanxiang
      Chen
                  
                  38
                  
                  Chairman
      of the Board and Chief Executive OfficerXiaolin
      Mao
                  
                  43
                  
                  Chief
      Financial Officer and DirectorXiaoguo
      Cui
                  
                  31
                  
                  Vice
      President, Human Resources and
Director
  The
business address for each of our directors is: c/o CC Jewelry Co., Ltd., 186
Pingyang Road, 6th Floor, Taiyuan City, Shanxi, 030006, People’s Republic of
China.
  The
following table lists the senior management of the Company:
  Name
                
                Age
                
                Position(s)Quanxiang
      Chen
                
                38
                
                Chairman
      of the Board and Chief Executive OfficerXiaolin
      Mao
                
                43
                
                Chief
      Financial Officer and DirectorXiaoguo
      Cui
                
                31
                
                Vice
      President, Human Resources and DirectorYingyan
      Guo
                
                33
                
                Vice
      President, Brand Development
 
 The
business address for each of the members of senior management is: c/o CC Jewelry
Co., Ltd., 186 Pingyang Road, 6th Floor, Taiyuan City, Shanxi, 030006, People’s
Republic of China.
  See Item 6.A. – Directors and Senior
Management below for more information about our directors and executive
officers.
  1.B.
Advisors
  The
Company’s legal advisors in the People’s Republic of China are: JunZeJun Law
Offices, 6/F, Financial Street Center, No. 9 Financial Street Road, Xicheng
District, Beijing 100033 P.R. China.
  The
Company’s legal advisors in the United States are: Kramer Levin Naftalis &
Frankel LLP, 1177 Avenue of the Americas, New York, NY 10036.
  The
Company’s legal advisors in the British Virgin Islands are: Withers BVI, 3rd
Floor, Little Denmark, Main Street, Road Town, Tortola, BVI.
  2
  1.C.
Auditors
  The
Company’s auditors are: Sherb & Co., LLP, 805 Third Avenue, New York, NY
10022. See Item 16.F – Change in Registrant’s Certifying Accountant below for
information about the change in our auditor following the business
combination.
  Sherb
& Co., LLP has confirmed that it is independent with respect to the Company
under the guidelines of the SEC and the Independence Standards
Board.
  ITEM 2.
                OFFER
      STATISTICS AND EXPECTED
TIMETABLE
  Not
Applicable.
  ITEM 3.
                KEY
      INFORMATION
  3.A.
Selected Financial Data
  The
following selected financial information should be read in connection with, and
is qualified by reference to, our consolidated financial statements and their
related notes and the section entitled “Operating and Financial Review and
Prospectus,” each of which is included elsewhere in this report. The
consolidated statements of operations and comprehensive income data for the
fiscal years ended December 31, 2009 and 2008 and the balance sheets data as of
December 31, 2009 and 2008 are derived from the audited consolidated financial
statements included elsewhere in this report. The consolidated statements of
operations and comprehensive income data for the fiscal years ended December 31,
2007, 2006 and 2005 and the balance sheets data as of December 31, 2007, 2006
and 2005 have been derived from unaudited financial statements that are not
included in this report. Our historical results for any of these periods are not
necessarily indicative of results to be expected in any future
period.
  Statement
      of Income
                            Year
      Ended December 31,2009
                            (Audited)
                          
                          
                          2008
                            (Audited)
                          
                          
                          2007
                            (Unaudited)
                          
                          
                          2006
                            (Unaudited)
                          
                          
                          2005
                            (Unaudited)Revenue,
      net
                          
                          $
                          58,920,419
                          
                          
                          $
                          59,767,770
                          
                          
                          $
                          32,435,935
                          
                          
                          
                          18,486,338
                          
                          
                          
                          12,379,178Cost
      of goods sold
                          
                          
                          41,180,014
                          
                          
                          
                          44,148,820
                          
                          
                          
                          22,354,515
                          
                          
                          
                          12,948,019
                          
                          
                          
                          9,117,960Gross
      profit
                          
                          
                          17,740,405
                          
                          
                          
                          15,618,950
                          
                          
                          
                          10,081,420
                          
                          
                          
                          5,538,320
                          
                          
                          
                          3,261,219Operating
      expensesSelling
      expenses
                          
                          
                          5,103,750
                          
                          
                          
                          5,946,222
                          
                          
                          
                          3,893,923
                          
                          
                          
                          2,017,397
                          
                          
                          
                          1,516,743Advertising
      expense
                          
                          
                          1,216,275
                          
                          
                          
                          1,591,568
                          
                          
                          
                          730,849
                          
                          
                          
                          333,795
                          
                          
                          
                          147,791General
      and administrative expenses
                          
                          
                          1,979,296
                          
                          
                          
                          2,590,548
                          
                          
                          
                          2,344,795
                          
                          
                          
                          1,260,551
                          
                          
                          
                          666,174Total
      Operating Expenses
                          
                          
                          8,299,321
                          
                          
                          
                          10,128,388
                          
                          
                          
                          6,969,567
                          
                          
                          
                          3,611,743
                          
                          
                          
                          2,330,708Income
      from operations
                          
                          
                          9,441,084
                          
                          
                          
                          5,490,612
                          
                          
                          
                          3,111,853
                          
                          
                          
                          1,926,577
                          
                          
                          
                          930,511Other
      income (Loss)Interest
      expenses, net
                          
                          
                          (957,643
                          )
                          
                          
                          (1,051,180
                          )
                          
                          
                          (474,202
                          )
                          
                          
                          (294,649
                          )
                          
                          
                          (232,875
                          )Other
      expenses, net
                          
                          
                          (85,970
                          )
                          
                          
                          (47,048
                          )
                          
                          
                          2,351
                          
                          
                          
                          25,858
                          
                          
                          
                          105,131Total
      other expenses
                          
                          
                          (1,043,613
                          )
                          
                          
                          (1,098,228
                          )
                          
                          
                          (471,851
                          )
                          
                          
                          (268,791
                          )
                          
                          
                          (127,744
                          )Income
      before income taxes
                          
                          
                          8,397,471
                          
                          
                          
                          4,392,384
                          
                          
                          
                          2,640,002
                          
                          
                          
                          1,657,786
                          
                          
                          
                          802,767Income
      taxes
                          
                          
                          (2,170,785
                          )
                          
                          
                          (1,179,861
                          )
                          
                          
                          (660,000
                          )
                          
                          
                          (414,447
                          )
                          
                          
                          (200,692
                          )Net
      income
                          
                          
                          6,226,686
                          
                          
                          
                          3,212,523
                          
                          
                          
                          1,980,001
                          
                          
                          
                          1,243,339
                          
                          
                          
                          602,075Other
      comprehensive incomeForeign
      currency translation adjustments
                          
                          
                          55,309
                          
                          
                          
                          1,104,798
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Comprehensive
      Income
                          
                          $
                          6,281,995
                          
                          
                          $
                          4,317,321
                          
                          
                          $
                          1,980,001
                          
                          
                          
                          1,243,339
                          
                          
                          
                          602,075
  3
 
 Balance
      Sheets Data (at end of period)
                            
                            December
      31,(in
      U.S. Dollars)
                            
                            2009
                            
                            
                            2008
                            
                            
                            2007
                            
                            
                            2006
                            
                            
                            2005Audited
                            
                            
                            Audited
                            
                            
                            Unaudited
                            
                            
                            Unaudited
                            
                            
                            UnauditedCash
      and cash equivalents
                            
                            $
                            1,540,673
                            
                            
                            $
                            759,785
                            
                            
                            $
                            783,825
                            
                            
                            $
                            958,156
                            
                            
                            $
                            70,547Total
      current assets
                            
                            
                            44,142,294
                            
                            
                            
                            35,310,639
                            
                            
                            
                            26,610,366
                            
                            
                            
                            14,566,855
                            
                            
                            
                            8,246,523Total
      noncurrent assets
                            
                            
                            6,626,162
                            
                            
                            
                            5,529,073
                            
                            
                            
                            4,213,475
                            
                            
                            
                            902,938
                            
                            
                            
                            450,085Total
      assets
                            
                            
                            50,768,456
                            
                            
                            
                            40,839,712
                            
                            
                            
                            30,823,841
                            
                            
                            
                            15,469,793
                            
                            
                            
                            8,696,609Total
      liabilities
                            
                            
                            23,247,067
                            
                            
                            
                            19,936,729
                            
                            
                            
                            13,863,728
                            
                            
                            
                            251,897
                            
                            
                            
                            (2,654,458
                            )Total
      shareholders’ equity
                            
                            
                            27,521,389
                            
                            
                            
                            20,902,983
                            
                            
                            
                            16,960,113
                            
                            
                            
                            15,217,896
                            
                            
                            
                            11,351,066Total
      liabilities and shareholders’ equity
                            
                            
                            50,768,456
                            
                            
                            
                            40,839,712
                            
                            
                            
                            30,823,841
                            
                            
                            
                            15,469,793
                            
                            
                            
                            8,696,609
  4
  3.A.3.
Exchange Rates
  Not
Applicable.
 
 3.B.
Capitalization and Indebtedness
  The
following table sets forth our capitalization and indebtedness as of December
31, 2009 on an actual basis. This information should be read in conjunction with
our consolidated financial statements and the notes relating to such statements
appearing elsewhere in this report.
  As of December 31, 2009Cash:Cash
      and cash equivalents
                    
                    $
                    1,540,673Debt:Short-term
      bank loans (1)
                    
                    
                    8,190,487Shareholders’
      equity:Paid-in
      capital
                    
                    
                    3,918,548Statutory
      reserve
                    
                    
                    3,406,574Retained
      earnings
                    
                    
                    19,036,160Accumulated
      other comprehensive income
                    
                    
                    1,160,107Total
      shareholders’ equity
                    
                    
                    27,521,389
  (1)       Short-term
bank loans are obtained from local banks in China. All the short-term bank loans
are repayable within one year. The weighted average annual interest rate of the
short-term bank loans was 8.43% as of December 31, 2009. Interest expense
related to these loans was $511,361 for the year ended December 31,
2009.
  3.C.
Reasons For The Offer And Use Of Proceeds
  Not
Applicable.
  5
  3.D.  Risk
Factors
  You
should carefully consider the risks described below in evaluating our business
before investing in our ordinary shares. If any of the following risks were to
occur, our business, results of operations and financial condition could be
harmed. In that case, the trading price of our ordinary shares could decline and
you might lose all or part of your investment in our ordinary shares. You should
also refer to the other information set forth in this report, including our
consolidated financial statements and the related notes and the section
captioned “Operating and Financial Review and Prospects” before deciding whether
to invest in our ordinary shares.
  Risks
Related to Our Business
  Our
operations are cash intensive, and our business could be adversely affected if
we fail to maintain sufficient levels of liquidity and working
capital.
  Historically,
we have spent a significant amount of cash on our operational activities,
principally to maintain the adequate levels of inventory in our boutiques. We
finance our operations primarily through cash flows from our operations,
short-term loans from local banks in the PRC and interest-free notes from Mr.
Chen, our Chairman and Chief Executive Officer.  Our financing needs
are greatest during the periods immediately prior to holidays and traditional
Chinese festivals, as we purchase greater levels of inventory in anticipation of
higher levels of sales during these periods.  If we fail to continue
to generate sufficient cash flow, particularly during the periods preceding
holidays and traditional Chinese festivals, we may not have sufficient liquidity
to fund our operating costs and our business could be adversely
affected.
  Our
short-term loans are from Chinese banks and are generally secured by our
inventories and/or guarantees by third parties. The term of almost all such
loans is one year or less. Historically, we have rolled over such loans on an
annual basis. However, we may not have sufficient funds available to pay all of
our borrowings upon maturity in the future. Failure to roll over our short-term
borrowings at maturity or to service our debt could result in the imposition of
penalties, including increases in interest rates, legal actions against us by
our creditors, or even insolvency.
  If
available liquidity is not sufficient to meet our operating and loan obligations
as they come due, our plans include considering pursuing alternative financing
arrangements, reducing expenditures as necessary, or limiting our plans for
expansion to meet our cash requirements. However, there is no assurance that, if
required, we will be able to raise additional capital, reduce discretionary
spending or efficiently limit our expansion to provide the required liquidity.
Currently, the capital markets for small capitalization companies are extremely
difficult and banking institutions have become stringent in their lending
requirements. Accordingly, we cannot be sure of the availability or terms of any
third party financing. If we are unable to raise additional financing, we may be
unable to implement our long-term business plan, develop or enhance our
products, take advantage of future opportunities or respond to competitive
pressures on a timely basis. In the alternative, if we raise capital by issuing
equity or convertible debt securities, such issuances could result in
substantial dilution to our shareholders.
  Our
ability to maintain or increase our revenue could be harmed if we are unable to
strengthen and maintain our brand image.
  We
believe that some of the primary factors in facilitating customer buying
decisions in China’s jewelry sector include price, confidence in the merchandise
sold, and the level and quality of customer service. The ability to
differentiate our products and service from competitors by our brand-based
marketing strategies is a key factor in attracting consumers, and if our
strategies and efforts to promote our brand, such as television and magazine
advertising, fail to garner brand recognition, our ability to generate revenue
may suffer. If we are unable to differentiate our products, our ability to sell
our products at anticipated profit levels could be adversely affected. If we
fail to identify or react appropriately or timely to customer buying decisions,
we could experience reduction in consumer recognition of our products, a
diminished brand image, higher markdowns, and costs to recast overstocked
jewelry. These factors could result in lowering selling prices and sales volumes
for our products, which could adversely affect our financial condition and
results of operations.
  6
  Our
sales and profitability fluctuate on a seasonal basis and are affected by a
variety of other factors.
  Our
business is affected by the seasonal pattern common to most
retailers.  The primary factors that affect the seasonal changes in
our business operations are holidays and traditional Chinese festivals.
Historically, the months that generally generate the greatest revenues for us
are October through January (approximately 36.4% in 2008 and 36.5% in 2009
of annual revenues), as a result of holidays and festivals that occur during
those months.  Retailers often experience increased sales due to the
week-long public holiday for Chinese National Day, as well as Christmas and New
Year’s Day. These months are also a peak season for marriages and the birth of
newborns in China, which have historically resulted in higher
sales.
  Any
significant decrease in net sales during the holiday or Chinese festival seasons
would have a material adverse effect on our business, our financial condition
and our results of operations. In addition, in order to prepare for these
seasons, we must order and keep in stock significantly more merchandise than we
carry during other periods during the year. This inventory build-up may require
us to expend cash faster than we generate by our operations during these
periods. Any unanticipated decrease in demand for our merchandise during this
peak shopping season could require us to sell excess inventory at a substantial
markdown, which could have a material adverse effect on our business and
profitability.
  Because
of the briefness of these selling periods, the opportunity for sales to recover
in the event of a disruption or other difficulty is limited, and the impact of
disruptions and difficulties can be significant. For instance, adverse weather,
a significant interruption in the receipt of products, or a sharp decline in
mall traffic occurring during one of these selling periods could materially
impact sales for the affected period and, because of the importance of each of
these selling periods, commensurately impact overall sales and
earnings.
  Our
retail expansion strategy depends on our ability to open and operate a certain
number of new counters and stores each year, which could strain our resources
and cause the performance of our existing operations to suffer.
  Our
retail expansion strategy will largely depend on our ability to successfully
find sites for, and to open and operate, new retail locations. Our ability to
open and operate new retail locations successfully depends on several factors,
including, among others, our ability to:
  ·
              identify
      suitable counter and store locations, the availability of which is outside
      our control;
  ·
              purchase
      and negotiate acceptable lease
terms;
  ·
              prepare
      counters and stores for opening within
budget;
  ·
              source
      sufficient levels of inventory at acceptable costs to meet the needs of
      new counters and stores;
  ·
              hire,
      train and retain personnel;
  ·
              secure
      required governmental permits and
approvals;
  ·
              successfully
      integrate new counters and stores into our existing
      operations;
  ·
              contain
      payroll costs; and
  ·
              generate
      sufficient operating cash flows or secure adequate capital on commercially
      reasonable terms to fund our expansion
plans.
  Any
failure to successfully open and operate new retail counters and stores could
limit our ability to grow our revenues in the manner we desire. In addition, our
proposed retail expansion program will place increased demands on our
operational, managerial and administrative resources. These increased demands
could cause us to operate our business less effectively, which, in turn, could
cause deterioration in the financial performance of our overall
business.
  7
 
 As
we expand our operations, we may need to establish a more diverse supplier
network for our materials.  The failure to secure a more diverse
and reliable supplier network could have an adverse effect on our financial
condition.
  We
currently purchase almost all of our materials from a small number of
suppliers.  During 2008 and 2009, we purchased approximately 56.3% and
49.6%, respectively, of our finished merchandise, such as gold
accessories,  from our top five finished product vendors and almost
all of our diamonds from our top five diamond suppliers.  As we
increase the scale of our retail operations, we may need to establish a more
diverse supplier network, while attempting to continue to leverage our
purchasing power to obtain favorable pricing and delivery
terms.  However, in the event that we need to diversify our supplier
network, we may not be able to procure a sufficient supply of high quality
diamonds and fine jewelry at a competitive price, which could have an adverse
effect on our results of operations, financial condition and cash
flows.
  Furthermore,
despite our efforts to control our supply of diamonds and fine jewelry and
maintain good relationships with our existing suppliers, we could lose one or
more of our existing suppliers at any time.  The loss of one or more
key suppliers could increase our reliance on higher cost or lower quality
supplies, which could negatively affect our profitability.  Any
interruptions to, or decline in, the amount or quality of our diamond and fine
jewelry supplies could materially disrupt our production and adversely affect
our business, financial condition and financial prospects.
  We
are subject to various risks and uncertainties that might affect our ability to
procure high quality merchandise.
  Our
performance depends on our ability to procure high quality merchandise on a
timely basis from our suppliers.  Our supplies are subject to certain
risks, including availability of materials, labor disputes, inclement weather,
natural disasters, and general economic and political conditions, which might
limit the ability of our suppliers to provide us with high quality merchandise
on a timely basis.  Furthermore, for these or other reasons, one or
more of our suppliers might not adhere to our quality control standards, and we
might not identify the deficiency.  Our suppliers’ failure to supply
quality materials at a reasonable cost on a timely basis could reduce our net
sales, damage our reputation and have an adverse effect on our financial
condition.
  Our
inability to manage our growth may have a material adverse effect on our
business, results of operations and financial condition.
  We have
experienced significant growth since we began operations in 2002.  Our
revenues have grown from approximately $12.4 million in 2005 to approximately
$58.9 million in 2009.
  We expect
our growth to continue to place significant demands on both our management and
our resources. This requires us to continuously evolve and improve our
operational, financial and internal controls across our organization. In
particular, continued expansion increases the challenges we face
in:
  ·
              recruiting,
      training and retaining sufficient skilled sales and management
      personnel;
 ·
              adhering
      to our high quality and process execution
  standards;
 ·
              maintaining
      high levels of customer
satisfaction;
 ·
              creating
      and managing economies of scale;
 ·
              maintaining
      and managing costs to correspond with timeliness of revenue recognition;
      and
 ·
              developing
      and improving our internal administrative infrastructure, including our
      financial, operational and communication systems, processes and
      controls.
  Any
inability to manage our growth may have a material adverse effect on our
business, results of operations and financial condition.
  8
  Jewelry
purchases are discretionary, may be particularly affected by adverse trends in
the general economy, and an economic decline may make it more difficult to
generate revenue.
  The
success of our operations depends, to a significant extent, upon a number of
factors relating to discretionary consumer spending in China. These factors
include economic conditions and perceptions of such conditions by consumers,
employment rates, the level of consumers’ disposable income, business
conditions, interest rates, consumer debt levels, availability of credit and
levels of taxation in the regions in which we sell our
products.  Consumer spending on jewelry may be adversely affected by
changes in general economic conditions in China or by changes in any one of the
aforementioned factors, which in turn could harm our financial
performance.
  Competition
in the jewelry industry could cause us to lose market share, thereby materially
and adversely affecting our business, results of operations and financial
condition.
  The
jewelry industry in China is highly fragmented and very competitive. We believe
that the market may become even more competitive as the jewelry industry in
China continues to grow. We compete with local jewelry retailers and large
foreign multinational companies that offer products that are similar to ours.
Some of these competitors have larger local or regional customer bases, more
locations, more brand equity, and substantially greater financial, marketing and
other resources than we have. Our inability to maintain or increase our market
share in proportion to our competitors could materially and adversely affect our
business, results of operations and financial condition.
  Our
sales are dependent upon mall traffic.
  Our
boutiques are located primarily in shopping malls and department stores
throughout the PRC. Our success is in part dependent upon the continued
popularity of malls and department stores, and particularly the malls and
department stores in which our boutiques are located, as a shopping destination
and the ability of these malls, their tenants and other mall attractions to
generate customer traffic. Accordingly, a significant decline in this
popularity, especially if it is sustained, would substantially harm our sales
and earnings. In addition, even assuming this popularity continues, mall traffic
can be negatively impacted by weather, gas prices and similar
factors.
  Any
failure of our pricing and promotional strategies to be as effective as desired
will negatively impact our sales and earnings.
  We set
prices for our products and establish product specific and store-wide promotions
in order to generate store traffic and sales. While these decisions are intended
to maximize our sales and earnings, in some instances they do not. For instance,
promotions, which can require substantial lead time, may not be as effective as
desired or may prove unnecessary in certain economic circumstances. If we
implement a pricing or promotional strategy that does not work as expected, our
sales and earnings will be adversely impacted.
  If
we are not able to adapt to changing jewelry trends in China, our inventory may
be overstocked and we may be forced to reduce the price of our overstocked
jewelry.
  Our
jewelry sales depend on consumer fashions, which can change rapidly. The ability
to accurately predict future changes in taste, respond to changes in consumer
preferences and carry the inventory demanded by customers at a high quality, all
have an important influence on determining sales performance and achieved gross
margin. If we fail to anticipate, identify or react appropriately to changes in
styles and trends, we could experience excess inventories, higher than normal
markdowns or an inability to sell our products.
  If
our inventory is lost due to theft, our results of operations would be
negatively impacted.
  We
purchase large volumes of precious metals. Although we have security systems in
place, we may be subject to losses due to third-party or employee theft. The
implementation of security measures beyond those that we already utilize, which
include security cameras and alarm systems, would increase our operating costs.
Also, any such losses could exceed the limits of, or be subject to an exclusion
from, coverage under our insurance policies. Claims filed by us under our
insurance policies could lead to increases in the insurance premiums payable by
us or the termination of coverage under the relevant policy.
  9
  Volatile
gold prices can cause significant fluctuations in our operating results. Our
revenues and operating income could decrease if gold or precious stone prices
decline or if we are unable to pass price increases on to our
customers.
  Our
principal materials are gold, platinum, diamonds and other precious stones.
The gold industry as a whole is cyclical and, at times, pricing and availability
of gold can be volatile due to numerous factors beyond our control, including
general domestic and international economic conditions, industry, demand,
inflation and expectations with respect to the rate of inflation, interest
rates, gold sales by central banks, changes in investment trends and
international monetary systems and the effect of changes in the supply and
demand for gold in public and private markets. This volatility can significantly
affect the availability and cost of gold materials for us.
  When gold
prices increase, competitive conditions will influence how much of the price
increase we can pass on to our customers. To the extent we are unable to pass on
future price increases in our gold materials to our customers, the revenues and
profitability of our business could be adversely affected. When gold prices
decline, customer demands for lower prices and our competitors' responses to
those demands could result in lower sale prices, lower margins and inventory
valued at the lower of cost or market adjustments as we use existing inventory.
Significant or rapid declines in gold prices or reductions in sales volumes
could result in us incurring inventory or goodwill impairment charges.
Therefore, changing gold prices could significantly impact our revenues, gross
margins, operating income and net income.
  Our
quarterly results may fluctuate because of many factors and, as a result,
investors should not rely on quarterly operating results as indicative of future
results.
  Fluctuations
in operating results or the failure of operating results to meet the
expectations of public market analysts and investors may negatively impact the
value of our securities. Quarterly operating results may fluctuate in the future
due to a variety of factors that could affect revenues or expenses in any
particular quarter. Fluctuations in quarterly operating results could cause the
value of our securities to decline. Investors should not rely on
quarter-to-quarter comparisons of results of operations as an indication of
future performance. As a result of the factors listed below, it is possible that
in future periods our results of operation may be below the expectations of
public market analysts and investors. Factors that may affect our quarterly
results include:
  ·
              vulnerability
      of our business to a general economic downturn in
  China;
  ·
              fluctuation
      and unpredictability of costs related to gold, diamonds, platinum and
      precious metal jewelry;
  ·
              seasonality
      of our business;
  ·
              changes
      in the laws of the PRC that affect our
  operations;
  ·
              competition
      from our competitors;
  ·
              our
      ability to obtain all necessary government certifications and/or licenses
      to conduct our business; and
  ·
              development
      of a public trading market for our
securities.
  10
  Our
success depends in large part upon our senior management and key personnel and
our inability to attract or retain these individuals could materially and
adversely affect our business, results of operations and financial
condition.
  We are
highly dependent on our senior management, including our Chief Executive
Officer, Quanxiang Chen, our Chief Financial Officer, Xiaolin Mao, our Vice
President, Human Resources, Xiaoguo Cui, and our Vice President, Brand
Development, Yingyan Guo. Our future performance will be dependent upon the
continued service of members of our senior management.  Competition
for senior management in our industry is intense, and we may not be able to
retain our senior management and key personnel or attract and retain new senior
management and key personnel in the future, which could materially and adversely
affect our business, results of operations and financial condition.
  One
shareholder owns a large percentage of our outstanding stock and could
significantly influence the outcome of our corporate matters.
  Currently,
Quanxiang Chen, our Chief Executive Officer, beneficially owns approximately
67.5% of our outstanding ordinary shares. As our majority shareholder, Mr. Chen
is able to exercise significant influence over all matters that require
shareholder approval, including the election of directors to our board and
approval of significant corporate transactions that we may consider, such as a
merger or other sale of our company or our assets. This concentration of
ownership in our shares by Mr. Chen will limit your ability to influence
corporate matters and may have the effect of delaying or preventing a third
party from acquiring control over us.
  Our
business could be materially adversely affected if we cannot protect our
intellectual property rights.
  We have
developed trademarks, know-how, trade names and other intellectual property
rights that are of significant value to us. However, the legal regime governing
intellectual property in the PRC is still evolving and the level of protection
of intellectual property rights in the PRC may differ from those in other
jurisdictions. Thus, it may be difficult to enforce our rights relating to our
intellectual property. In the event of the occurrence of any unauthorized use
of, or other infringement to, our intellectual property, potential sales of our
products might be diverted to such unauthorized sellers and could cause
potential damage to, or dilute the value of, such rights or our
brand.
  Any
loss or limitations on our right to use intellectual property licensed from
third parties could have a material adverse effect on our business, operating
results and financial condition.
  We have
been granted an exclusive license to use two trademarks, both of which are
registered trademarks in the PRC.  The owner of the trademarks, Man
Yu, is the wife of Mr. Chen, our Chairman and Chief Executive
Officer.  Pursuant to the licensing agreement between Ms. Yu and
Chongqing, we have the exclusive right to these trademarks.  While we
are not aware of any disputes between the trademark owner and us or any third
party, the trademark owner may determine not to protect her intellectual
property rights that we license from her and we may be unable to defend such
intellectual property rights on our own or we may have to undertake costly
litigation to defend the intellectual property rights of the trademark
owner.  Upon the termination of the license agreement for this
trademark, we may no longer continue to have proprietary rights to the
intellectual property that we license from the trademark owner.  Any
loss or limitations on our right to use the intellectual property licensed from
the trademark owner could have a material adverse effect on our business,
operating results and financial condition.
  11
  Our
inability to maintain appropriate internal financial reporting controls and
procedures could cause us to fail to meet our reporting obligations, result in
the restatement of our financial statements, harm our operating results, subject
us to regulatory scrutiny and sanction, and cause investors to lose confidence
in our reported financial information.
  Effective
internal controls are necessary for us to provide reliable financial reports and
effectively prevent fraud.  As a public company, we have significant
requirements for enhanced financial reporting and internal controls. We are
required to document and test our internal control procedures in order to
satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or
Sarbanes-Oxley, which requires annual management assessments of the
effectiveness of our internal controls over financial reporting and, for many
companies, a report by the independent registered public accounting firm
addressing these assessments. The process of designing and implementing
effective internal controls is a continuous effort that requires us to
anticipate and react to changes in our business and the economic and regulatory
environments and to expend significant resources to maintain a system of
internal controls that is adequate to satisfy our reporting obligations as a
public company.
  We cannot
assure you that we will not in the future identify areas requiring improvement
in our internal control over financial reporting. We cannot assure you that the
measures we will take to remediate any areas in need of improvement will be
successful or that we will implement and maintain adequate controls over our
financial processes and reporting in the future as we continue our growth. If we
are unable to establish appropriate internal financial reporting controls and
procedures, it could cause us to fail to comply with Sarbanes-Oxley and meet our
reporting obligations, result in the restatement of our financial statements,
harm our operating results, subject us to regulatory scrutiny and sanction, and
cause investors to lose confidence in our reported financial
information.
  We
will incur increased costs as a result of being a public company.
  As a
public company, we will incur significant legal, accounting and other expenses
that we did not incur as a private company. We expect the rules and regulations
to which public companies are subject, including Sarbanes-Oxley, to increase our
legal, accounting and financial compliance costs and to make certain corporate
activities more time-consuming and costly. In addition, we will incur additional
costs associated with our public company reporting requirements.
  Risks
Related to Our Corporate Structure
  The
PRC government may determine that our corporate structure is not in compliance
with applicable PRC laws, rules and regulations.
  Our
wholly owned subsidiary, Chongqing Yu Zhong Commerce Co., Ltd., or Chongqing,
manages and operates our fine jewelry business through Taiyuan Basic Points
Commerce Co., Ltd., or Taiyuan Basic Points, a PRC company owned by Mr. Chen,
our Chairman and Chief Executive Officer, and his brother in-law, Mr. Yu,
who is also the general manager of Taiyuan Basic Points. Chongqing operates
Taiyuan Basic Points’ business pursuant to contractual arrangements with Taiyuan
Basic Points and Messrs. Chen and Yu, which arrangements we also refer to
throughout this report as the VIE Agreements. Almost all economic benefits and
risks arising from Taiyuan Basic Points’ operations have been transferred to
Chongqing under these agreements. Details of the VIE Agreements are set out
below in Item 4A – “History and Development of the Company – Contractual
Arrangements.”
  There are
risks involved in the operation of our business in reliance on the VIE
Agreements, including the risk that the VIE Agreements may be determined by PRC
regulators or courts to be unenforceable.  If the VIE Agreements were
for any reason determined to be in breach of any existing or future PRC laws or
regulations, the relevant regulatory authorities would have broad discretion in
dealing with such breach, including:
  ·
              imposing
      economic penalties;
  ·
              discontinuing
      or restricting the operations of Chongqing or Taiyuan Basic
      Points;
  ·
              imposing
      conditions or requirements in respect of the VIE Agreements with which
      Chongqing may not be able to
comply;
  ·
              requiring
      our company to restructure the relevant ownership structure or
      operations;
  ·
              taking
      other regulatory or enforcement actions that could adversely affect our
      company’s business; and
  ·
              revoking
      the business licenses and/or the licenses or certificates of Chongqing or
      Taiyuan Basic Points, and voiding the VIE
  Agreements.
  12
  Any of
these actions could adversely affect our ability to manage, operate and gain the
financial benefits of Taiyuan Basic Points, which would have a material adverse
impact on our business, financial condition and results of
operations.
  Our
ability to manage and operate Taiyuan Basic Points under the VIE Agreements may
not be as effective as direct ownership.
  We
conduct our jewelry retail businesses in the PRC, and generate all of our
revenues, through the VIE Agreements. Our plans for future growth are based on
growing the operations of Taiyuan Basic Points. However, the VIE Agreements may
not be as effective in providing us with control over Taiyuan Basic Points as
direct ownership. Under the current VIE arrangements, as a legal matter, if
Taiyuan Basic Points fails to perform its obligations under these contractual
arrangements, we may have to (a) incur substantial costs and resources to
enforce such arrangements and (b) seek legal remedies under PRC law, which we
cannot be sure would be effective. Therefore, if we fail to effectively control
Taiyuan Basic Points, such failure would have an adverse effect on our ability
to achieve our business objectives and grow our revenues.
 
 The
shareholders of Taiyuan Basic Points may breach, or cause Taiyuan Basic Points
to breach, the VIE Agreements.
  Mr. Chen,
the primary shareholder of Taiyuan Basic Points may breach, or cause Taiyuan
Basic Points to breach, the VIE Agreements because his equity interests in
Taiyuan Basic Points are greater than his equity interests in our
company.  As a result, Mr. Chen may breach a contract with us if he
believes that such breach will lead to greater economic benefit for
him.  If the shareholders of Taiyuan Basic Points were to breach, or
cause Taiyuan Basic Points to breach, the VIE Agreements for this reason or any
other reason, we may have to rely on legal or arbitral proceedings to enforce
our contractual rights, including specific performance, injunctive relief or
claiming damages. Such arbitral and legal proceedings may cost us substantial
financial and other resources, and result in disruption of our business, and we
cannot assure you that the outcome will be in our favor.
  The
payment arrangement under the VIE Agreements may be challenged by the PRC tax
authorities.
  We
generate our revenues through payments that we receive from Taiyuan Basic Points
pursuant to the VIE Agreements. We could face adverse tax consequences if the
PRC tax authorities determine that the VIE Agreements were not entered into
based on arm’s length negotiations. For example, PRC tax authorities may adjust
our income and expenses for PRC tax purposes which could result in our being
subject to higher tax liability.
  Risks
Related to Doing Business in China
  Changes
in China’s political or economic situation could harm us and our operating
results.
  Economic
reforms adopted by the Chinese government have had a positive effect on the
economic development of the country, but the government could change these
economic reforms or any of the legal systems at any time. This could either
benefit or damage our operations and profitability. Some of the things that
could have a negative effect are:
  ·
              level
      of government involvement in the
economy;
  ·
              control
      of foreign exchange;
  ·
              methods
      of allocating resources;
  ·
              balance
      of payments position;
  ·
              international
      trade restrictions; and
  ·
              international
      conflict.
  13
  The
Chinese economy differs from the economies of most countries belonging to the
Organization for Economic Cooperation and Development, or OECD, in a number of
ways. For example, state-owned enterprises still constitute a large portion of
the Chinese economy, and weak corporate governance and the lack of a flexible
currency exchange policy still prevail in China. As a result of these
differences, we may not develop in the same way or at the same rate as might be
expected if the Chinese economy was similar to those of OECD member
countries.
  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, 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 reforms and to 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.
  Future
inflation in China may inhibit our ability to conduct business in
China.
  In recent
years, the Chinese economy has experienced periods of rapid expansion and highly
fluctuating rates of inflation. During the past ten years, the rate of inflation
in China has been as high as 5.9% and as low as (0.8)%. These factors have led
to the adoption by the Chinese government, from time to time, of various
corrective measures designed to restrict the availability of credit or regulate
growth and contain inflation. High inflation may in the future cause the Chinese
government to impose controls on credit and/or prices, or to take other action,
which could inhibit economic activity in China, and thereby harm the market for
our products and our company.
  You
may have difficulty enforcing judgments against us.
  Our
assets are located, and our operations are conducted, in the PRC. In addition,
all of our directors and officers are nationals and residents of the PRC and a
substantial portion of their assets are located outside the United States. As a
result, it may be difficult for you to effect service of process within the
United States upon these persons. In addition, there is uncertainty as to
whether the courts of the PRC would recognize or enforce judgments of U.S.
courts because China does not have any treaties or other arrangements that
provide for the reciprocal recognition and enforcement of foreign judgments with
the United States. In addition, according to the PRC Civil Procedures Law,
courts in the PRC will not enforce a foreign judgment against us or our
directors and officers if they decide that the judgment violates basic
principles of PRC law or national sovereignty, security, or the public
interest.
  Most
of our revenues are denominated in Renminbi, which is not freely convertible for
capital account transactions and may be subject to exchange rate
volatility.
  We are
exposed to the risks associated with foreign exchange controls and restrictions
in China, as our revenues are primarily denominated in Renminbi, which is
currently not freely exchangeable. The PRC government imposes control over the
convertibility between Renminbi and foreign currencies. Under the PRC foreign
exchange regulations, payments for “current account” transactions, including
remittance of foreign currencies for payment of dividends, profit distributions,
interest and operation-related expenditures, may be made without prior approval
but are subject to procedural requirements. Strict foreign exchange control
continues to apply to “capital account” transactions, such as direct foreign
investment and foreign currency loans. These capital account transactions must
be approved by, or registered with, the PRC State Administration of Foreign
Exchange, or SAFE. Further, capital contribution by an offshore shareholder to
its PRC subsidiaries may require approval by the Ministry of Commerce in China
or its local counterparts. We cannot assure you that we will be able to meet all
of our foreign currency obligations to remit profits out of China or to fund
operations in China.
  14
  On August
29, 2008, SAFE promulgated the Circular on the Relevant Operating Issues
concerning the Improvement of the Administration of Payment and Settlement of
Foreign Currency Capital of Foreign-Invested Enterprises, or Circular 142, to
regulate the conversion by foreign invested enterprises, or FIEs, of foreign
currency into Renminbi by restricting how the converted Renminbi may be used.
Circular 142 requires that Renminbi converted from the foreign
currency-dominated capital of a FIE may be used only for purposes within the
business scope approved by the applicable government authority and may not be
used for equity investments within the PRC unless specifically provided. In
addition, SAFE strengthened its oversight over the flow and use of Renminbi
funds converted from the foreign currency-dominated capital of a FIE. The use of
such Renminbi may not be changed without approval from SAFE, and may not be used
to repay Renminbi loans if the proceeds of such loans have not yet been used.
Compliance with Circular 142 may delay or inhibit our ability to complete such
transactions, which could affect our ability to expand our
business.
  Fluctuation
in the value of the Renminbi and of the U.S. dollar may have a material adverse
effect on investments in our ordinary shares.
  Any
significant revaluation of the Renminbi may have a material adverse effect on
the U.S. dollar equivalent amount of our revenues and financial condition as
well as on the value of, and any dividends payable on, our ordinary shares in
foreign currency terms. For instance, a decrease in the value of Renminbi
against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our
financial results, the value of your investment in our ordinary shares and the
dividends we may pay in the future, if any, all of which may have a material
adverse effect on the prices of our common shares. All of our revenues are
denominated in Renminbi. Any further appreciation of the Renminbi against the
U.S. dollar may result in significant exchange losses.
  Prior to
1994, the Renminbi experienced a significant net devaluation against most major
currencies, and there was significant volatility in the exchange rate during
certain periods. Upon the execution of the unitary managed floating rate system
in 1994, the Renminbi was devalued by 50% against the U.S. dollar. Since 1994,
the Renminbi to U.S. dollar exchange rate has largely stabilized. On July 21,
2005, the People’s Bank of China announced that the exchange rate of U.S. dollar
to Renminbi would be adjusted from $1 to RMB8.27 to $1 to RMB8.11, and it
ceased to peg the Renminbi to the U.S. dollar. Instead, the Renminbi would be
pegged to a basket of currencies, whose components would be adjusted based on
changes in market supply and demand under a set of systematic principles.
On September 23, 2005, the PRC government widened the daily trading band for
Renminbi against non-U.S. dollar currencies from 1.5% to 3.0% to improve the
flexibility of the new foreign exchange system. Since the adoption of these
measures, the value of Renminbi against the U.S. dollar has fluctuated on a
daily basis within narrow ranges, but overall has further strengthened against
the U.S. dollar. In June 2010, the Chinese government announced its intention to
allow the Renminbi to fluctuate within the June 2005
parameters.  There remains significant international pressure on the
PRC government to further liberalize its currency policy, which could result in
a further and more significant appreciation in the value of the Renminbi against
the U.S. dollar. The Renminbi may be revalued further against the U.S. dollar or
other currencies, or may be permitted to enter into a full or limited free
float, which may result in an appreciation or depreciation in the value of the
Renminbi against the U.S. dollar or other currencies.
  China’s
legal system is different from those in some other countries.
  China is
a civil law jurisdiction. Under the civil law system, prior court decisions may
be cited as persuasive authority but do not have binding precedential effect.
Although progress has been made in the promulgation of laws and regulations
dealing with economic matters, such as corporate organization and governance,
foreign investment, commerce, taxation and trade, China’s legal system remains
less developed than the legal systems in many other countries. Furthermore,
because many laws, regulations and legal requirements have been recently
adopted, their interpretation and enforcement by the courts and administrative
agencies may involve uncertainties. Sometimes, different government departments
may have different interpretations. Licenses and permits issued or granted by
one government authority may be revoked by a higher government authority at a
later time. Government authorities may decline to take action against unlicensed
operators which may work to the disadvantage of licensed operators, including
us. The PRC legal system is based in part on government policies and internal
rules that may have a retroactive effect. We may not be aware of our
violation of these policies and rules until some time after the violation.
Changes in China’s legal and regulatory framework, the promulgation of new laws
and possible conflicts between national and provincial regulations could
adversely affect our financial condition and results of operations. In addition,
any litigation in China may result in substantial costs and diversion of
resources and management attention.
  15
  Under
the New Enterprise Income Tax Law, we may be classified as a “resident
enterprise” of China. Such classification would likely result in unfavorable tax
consequences to us and our non-PRC shareholders.
  China
passed a New Enterprise Income Tax Law, or the New EIT Law, which became
effective on January 1, 2008. Under the New EIT Law, an enterprise established
outside of China with de facto management bodies within China is considered a
resident enterprise, meaning that it can be treated in a manner similar to a
Chinese enterprise for enterprise income tax purposes. The implementing rules of
the New EIT Law define de facto management as “substantial and overall
management and control over the production and operations, personnel,
accounting, and properties” of the enterprise. In addition, a circular issued by
the State Administration of Taxation on April 22, 2009 clarified that dividends
and other income paid by such resident enterprises will be considered to be PRC
source income, subject to PRC withholding tax, currently at a rate of 10%, when
recognized by non-PRC enterprise shareholders. This recent circular also
subjects such resident enterprises to various reporting requirements with the
PRC tax authorities.
  Although
all of our management is currently located in the PRC, it remains unclear
whether the PRC tax authorities would require or permit our overseas registered
entities to be treated as PRC resident enterprises. We do not currently consider
our company to be a PRC resident enterprise. However, if the PRC tax authorities
determine that we are a resident enterprise for PRC enterprise income tax
purposes, a number of unfavorable PRC tax consequences could follow. First, we
may be subject to the enterprise income tax at a rate of 25% on our worldwide
taxable income as well as PRC enterprise income tax reporting obligations. In
our case, this would mean that income such as interest on offering proceeds and
non-China source income would be subject to PRC enterprise income tax at a rate
of 25%. Second, although under the New EIT Law and its implementing rules
dividends paid to us from our PRC subsidiaries would qualify as tax-exempt
income, we cannot guarantee that such dividends will not be subject to a 10%
withholding tax, as the PRC foreign exchange control authorities, which enforce
the withholding tax, have not yet issued guidance with respect to the processing
of outbound remittances to entities that are treated as resident enterprises for
PRC enterprise income tax purposes. Finally, it is possible that future guidance
issued with respect to the new resident enterprise classification
could result in a situation in which a 10% withholding tax is imposed on
dividends we pay to our non-PRC shareholders and with respect to gains derived
by our non-PRC shareholders from transferring our shares.
  Restrictions
under PRC law on Chongqing’s ability to pay dividends and make other
distributions could materially and adversely affect our ability to grow, make
investments or acquisitions that could benefit our business, pay dividends to
you, and otherwise fund and conduct our business.
  PRC
regulations restrict the ability of PRC subsidiaries to pay dividends and make
other payments to their offshore parent company. PRC legal restrictions permit
payments of dividends by PRC subsidiaries only out of their accumulated
after-tax profits, if any, determined in accordance with PRC accounting
standards and regulations. PRC subsidiaries are also required under PRC laws and
regulations to allocate at least 10% of their annual after-tax profits
determined in accordance with PRC GAAP to a statutory general reserve fund until
the amounts in said fund reaches 50% of their registered capital. Allocations to
these statutory reserve funds can be used only for specific purposes and are not
transferable to us in the form of loans, advances, or cash dividends. Any
limitations on the ability of Chongqing to transfer funds to us could materially
and adversely limit our ability to grow, make investments or acquisitions that
could be beneficial to our business, pay dividends and otherwise fund and
conduct our business.
  The
scope of our business license in China is limited, and we may not expand or
continue our business without government approval.
  Chongqing,
our wholly owned subsidiary, is a Wholly Foreign Owned Enterprise, commonly
known as a WFOE. A WFOE can conduct business only within the approved business
scope that appears on the company’s business license. Chongqing’s business
license permits it to design, manufacture, sell and market jewelry products to
department stores throughout the PRC.  Any amendment to the scope of
Chongqing’s business requires further application and government approval. In
order for Chongqing to expand its business beyond the scope of its license,
Chongqing will be required to enter into a negotiation with the authorities for
the approval to expand the scope of its business. We cannot assure you that
Chongqing will be able to obtain the necessary government approval for any
change or expansion of its business.
  16
  If
the China Securities Regulatory Commission, or CSRC, or another Chinese
regulatory agency, determines that CSRC approval is required in connection with
our business combination or our contractual arrangement with Chongqing and its
shareholders, we may become subject to penalties.
  On August
8, 2006, six Chinese regulatory agencies, including the Chinese Securities
Regulatory Commission, or CSRC, promulgated the M&A Regulation, which became
effective on September 8, 2006 and was subsequently revised on June 22, 2009.
This regulation, among other things, has certain provisions that require
offshore special purpose vehicles formed for the purpose of acquiring Chinese
domestic companies and directly or indirectly established or controlled by
Chinese entities or individuals, to obtain the approval of the CSRC prior to
publicly listing their securities on an overseas stock market. On September 21,
2006, the CSRC published on its official website a notice specifying the
documents and materials that are required to be submitted for obtaining CSRC
approval. It is not clear how the provisions in the regulation regarding the
offshore listing and trading of the securities of a special purpose vehicle
apply to us. We believe, based on the interpretation of the regulation and the
practice experience of our Chinese legal counsel, JunZeJun Law Offices, that
CSRC approval is not required for the business combination between Super Champ
and Square C or our contractual arrangement with Chongqing and its shareholders.
There remains some uncertainty as to how this regulation will be interpreted or
implemented. If the CSRC or another Chinese regulatory agency subsequently
determines that the CSRC’s approval is required for this offering or our
contractual arrangement with Chongqing and its shareholders, we may face
sanctions by the CSRC or another Chinese regulatory agency. If this happens,
these regulatory agencies may impose fines and penalties on our operations in
China, limit our operating privileges in China, restrict or prohibit payment or
remittance of dividends to us or take other actions that could have a material
adverse effect on our business, financial condition, results of operations,
reputation and prospects.
  We
must comply with the Foreign Corrupt Practices Act.
  We are
required to comply with the United States Foreign Corrupt Practices Act, which
prohibits U.S. companies from making prohibited payments to foreign officials
for the purpose of obtaining or retaining business.  Corruption,
extortion, bribery, pay-offs, theft and other fraudulent practices occur from
time to time in mainland China.  If any of our non-U.S. listed
competitors that are not subject to the Foreign Corrupt Practices Act engage in
these practices, they may receive preferential treatment and secure business
from government officials in a way that is unavailable to
us.  Furthermore, although we inform our personnel that such
practices are illegal, we cannot assure you that our employees or other agents
will not engage in illegal conduct for which we might be held responsible under
U.S. law.  If our employees or other agents are found to have engaged
in such practices, we could suffer severe penalties.
  Because
our funds are held in banks that do not provide insurance, the failure of any
bank in which we deposit our funds could affect our ability to continue our
business operations.
  Banks and
other financial institutions in the PRC do not provide insurance for funds held
on deposit. As a result, in the event of a bank failure, we may not have access
to funds on deposit. Depending upon the amount of money we maintain in a bank
that fails, our inability to have access to our cash could impair our
operations, and, if we are not able to access funds to pay our suppliers,
employees and other creditors, we may be unable to continue our business
operations.
  If
relations between the United States and China worsen, investors may be unwilling
to hold or buy our ordinary shares and our share price may
decrease.
  At
various times during recent years, the United States and China have had
significant disagreements over political and economic issues. Controversies may
arise in the future between these two countries. Any political or trade
controversies between the United States and China, whether or not directly
related to our business, could reduce the price of our ordinary
shares.
  17
  Risks
Related to Our Ordinary Shares.
  We
may not be able to pay any dividends on our ordinary shares.
  Under
British Virgin Islands law, we may pay dividends if we are able to satisfy the
solvency test laid out in the BVI Business Companies Act, 2004, or the BVI Act,
which provides that directors must declare that immediately following the
payment of a dividend or distribution the Company would be solvent on both a
cash flow and balance sheet basis.  Our ability to pay dividends will
therefore depend on our ability to generate sufficient profits. We cannot give
any assurance that we will declare dividends of any amounts, at any rate or at
all in the future. Future dividends, if any, will be at the discretion of our
board of directors and will depend upon our results of operations, our cash
flows, our financial condition, the payment of our subsidiaries of cash
dividends to us, our capital needs, future prospects and other factors that our
directors may deem appropriate.  We have never declared or paid any
dividend on our ordinary shares and we do not anticipate paying any dividends on
our ordinary shares in the future.
  There
is no public market for our ordinary shares, and you may not be able to resell
our ordinary shares at or above the price you paid, or at all.
  There is
no public market for our ordinary shares. If an active trading market for our
ordinary shares does not develop, the market price and liquidity of our ordinary
shares will be materially and adversely affected and you may not be able to
resell our ordinary shares at or above the price you paid, or at all. An active
trading market for our ordinary shares may not develop in a timely manner or at
all.
  If
equity research analysts do not publish research reports about our company or if
they issue unfavorable commentary or downgrade our ordinary shares, the price of
our ordinary shares could decline.
  The
trading market for our ordinary shares will rely in part on the research reports
that equity research analysts publish about us and our company. We do not
control these analysts. The price of our ordinary shares could decline if one or
more equity analysts downgrade our ordinary shares or if they issue other
unfavorable commentary, or cease publishing reports, about us or our
company.
  ITEM
      4.
              INFORMATION
      ON THE COMPANY
  4A.  History
and Development of the Company
  We are a
British Virgin Islands limited liability company organized on January 5, 2010
under the BVI Act under the name Super Champ Group Limited, or Super Champ, as a
blank check company for the purpose of acquiring, through a share exchange,
asset acquisition or other similar business combination, an operating
business.
  Business
Combination
  On
September 10, 2010, Super Champ and its sole shareholder entered into a
share exchange agreement with Square C, a British Virgin Islands limited
liability company organized on April 9, 2010 under the BVI Act, and the
shareholders of Square C. Pursuant to the share exchange agreement, Super Champ
acquired from the shareholders of Square C all of the issued and outstanding
shares of Square C, in exchange for an aggregate of 7,000,000 newly issued
ordinary shares issued by Super Champ to the shareholders of Square
C.  In addition, the sole shareholder of Super Champ sold all of the
5,000,000 ordinary shares of Super Champ that were issued and outstanding prior
to the business combination, to the shareholders of Square C for cash, at a
price of $0.03 per share.  As a result, the individuals and entities
that owned shares of Square C prior to the business combination acquired 100% of
the equity of Super Champ, and Super Champ acquired 100% of the equity of Square
C.  Square C is now a wholly owned subsidiary of Super
Champ.  In conjunction with the business combination, Super Champ
filed an amended charter, pursuant to which Super Champ changed its name to CC
Jewelry Co., Ltd., changed its fiscal year end to December 31, changed the par
value of its ordinary shares to $0.01 per share and increased its authorized
shares to 100,000,000.  Upon the consummation of the business
combination, we ceased to be a shell company.
  18
  Our
Shareholders
  Mr. Chen,
our Chairman and Chief Executive Officer, owns 100% of the equity in Jin Fan
Commerce Company Limited, a British Virgin Island company, which owned 67.5% of
the equity of Square C prior to the business combination, and owns 67.5% of our
equity since the business combination. Dan Yu, the brother in-law of Mr. Chen
and general manager of Taiyuan Basic Points, owns 100% of the equity in Sail
Start Commerce Company Limited, a British Virgin Islands company, which owned
4.5% of the equity of Square C prior to the business combination and owns 4.5%
of our equity since the business combination.  Yongxiang Chen, the
brother of our chairman, Quanxiang Chen, owns 100% of the equity in Zong Fan
Commerce Company Limited, a British Virgin Islands company, which owned 4.5% of
the equity of Square C prior to the business combination and owns 4.5% of our
equity since the business combination.
  The
holders of the remaining 23.5% of our shares are investors that are residents of
the PRC and are unaffiliated with us.
  Our
Subsidiaries
  Offshore
Holding Company Subsidiaries
  Square C,
our wholly owned subsidiary, was incorporated on April 9, 2010 under the laws of
the British Virgin Islands.  We acquired all of the capital stock of
Square C pursuant to the business combination on September 10,
2010.  On June 25, 2010, Square C acquired all of the outstanding
equity of Massfit Corporation Ltd., or Massfit, a limited liability company
formed on March 17, 2010 under the laws of Hong Kong.  On June 9,
2010, Massfit established a wholly owned subsidiary, Chongqing Yu Zhong
Commerce Co., Ltd., or Chongqing, a wholly foreign owned enterprise formed
under the laws of the PRC.  Square C, Massfit and Chongqing are
holding companies.  As a result of these transactions, each of Square
C, Massfit and Chongqing is a wholly owned subsidiary of ours.  As
described below under “Contractual Arrangements,” Chongqing controls Taiyuan
Basic Points.
  PRC Operating Companies
  Taiyuan
Basic Points is a PRC company formed on February 28, 2002, formerly known as
Taiyuan Kamei Jewelry Trading Co., Ltd.  Mr. Chen and Ms. Yu together
own 100% of Taiyuan Basic Points, which operates all of our business operations
in the PRC along with its subsidiaries.  Mr. Chen owns 90% of Taiyuan
Basic Points and Mr. Yu owns 10%.
  The
following table provides a description of each of the subsidiaries of Taiyuan
Basic Points:
  Name of Subsidiary
                
                Operating activitiesShanxi
      Zhong Yao Commerce Co., Ltd.
                
                Operating
      Chow Tai Fook brand and managing Chow Tai Fook counters and
      storesShanxi
      Bo Ye Commerce Co., Ltd.
                
                Operating
      FENIX brand and managing FENIX counters and storesLinfen
      Jimei Jewelry Co., Ltd.
                
                Operating
      and managing CC counter in LinfenYangquan
      Daoming Commerce Co., Ltd.
                
                Operating
      and managing CC counter in YangquanShanghai
      Zhong Yao Commerce Co., Ltd.
                
                Operating
      FENIX brand and managing FENIX counters and storesChangzhi
      Kamei Commerce Co., Ltd. (1)
                
                Operating
      and managing CC and Chow Tai Fook counters in ChangzhiShuozhou
      Kamei Commerce Co., Ltd. (1)
                
                Operating
      and managing CC counter in ShuozhouJincheng
      Kamei Commerce Co., Ltd. (1)
                
                Operating
      and managing CC and Chow Tai Fook counters in JinchengDatong
      Kamei Commerce Co., Ltd. (2)
                
                Operating
      and managing CC and Chow Tai Fook counters in
  Datong
  (1) These
subsidiaries were formed subsequent to our fiscal year ended December 31,
2009.
  (2) This
entity was acquired on April
30, 2010 for approximately $0.8 million.
  19
  History
of Taiyuan Basic Points
  Our
business is operated by Taiyuan Basic Points, a PRC company formed on February
28, 2002.  Taiyuan Basic Points is a leading jewelry company which
designs and retails fine jewelry in China, with headquarters in Taiyuan City,
Shanxi Province, PRC.
 
 Mr. Chen,
our Chairman and Chief Executive Officer, established the c.comeliness, or CC,
brand and began selling CC products in Shanxi Province in 2000. In 2002, Mr.
Chen established Taiyuan Basic Points, which acquired all of the CC assets from
Mr. Chen.
 
 In order
to attract high income consumers, Taiyuan Basic Points created the FENIX brand
in 2003. In addition, in 2004, Taiyuan Basic Points began operating as a
non-exclusive distributor for Chow Tai Fook jewelry in Shanxi Province through
newly opened boutiques. In September 2006, Taiyuan Basic Points began operating
as a non-exclusive distributor for Calvin Klein clothing in Chendu.
 
 In May
2006, Taiyuan Basic Points began operating as a non-exclusive distributor for
Emperor Jewelry.  However, Taiyuan Basic Points terminated this
arrangement in July 2010 in order to focus its resources on sales of its primary
products, CC, FENIX and Chow Tai Fook. Between July 2007 and July 2009, Taiyuan
Basic Points operated as a non-exclusive distributor for Luk Fook Jewelry. In
addition, between October 2007 and October 2008, Taiyuan Basic Points operated
as non-exclusive distributor for Tommy Hilfiger clothing. However, Taiyuan Basic
Points terminated the arrangements with these companies in order to focus its
resources on sales of its CC, FENIX and Chow Tai Fook products.  We
describe our products in more detail below in Item 4.B.
  Contractual
Arrangements
  Mr. Chen,
our Chairman and Chief Executive Officer, owns 90% of Taiyuan Basic Points and
Mr. Chen’s brother in-law, Mr. Yu, owns the remaining 10%. Taiyuan Basic
Points, Mr. Chen and Mr. Yu and Chongqing entered into a series of contractual
arrangements on July 6, 2010 that provide Chongqing with effective control over
the operations of Taiyuan Basic Points and of the related economic benefits of
Taiyuan Basic Points in consideration for the services provided by
Chongqing.  We intend to continue our business operations in China upon the
expiration of these contractual arrangements by renewing such agreements or
entering into new contractual arrangements if the then current PRC law does not
allow us to directly operate Taiyuan Basic Points’ business in China. We believe
that, under these contractual arrangements, we have sufficient control over
Taiyuan to renew or enter into new contractual arrangements prior to the
expiration of the current arrangements on terms that would enable us to continue
to operate our business in China after the expiration of the current
arrangements.
  Exclusive
Business Cooperation Agreement.  Pursuant to the exclusive business
cooperation agreement entered into on July 6, 2010 between Chongqing and Taiyuan
Basic Points, Chongqing provides technical and consulting services related to
the business operations of Taiyuan Basic Points. As consideration for such
services, Taiyuan Basic Points has agreed to pay an annual service fee to
Chongqing in an amount equal to a certain percentage of its income for such
year.  The parties will agree on the percentage after further negotiations,
which may be adjusted from time to time.  The term of this agreement is 30
years from the date thereof. Taiyuan Basic Points may terminate the agreement
upon Chongqing’s gross negligence or commission of a fraudulent act against
Taiyuan Basic Points.  Chongqing may terminate the agreement at any time
upon giving 30 days’ prior written notice to Taiyuan Basic Points.
  Exclusive Option
Agreement.    Chongqing entered into an exclusive option
agreement on July 6, 2010 with each of the shareholders of Taiyuan Basic Points,
Messrs. Chen and Yu, as well as Taiyuan Basic Points itself, pursuant to which
Chongqing has an exclusive option to purchase, or to designate another qualified
person to purchase, to the extent permitted by PRC law and foreign investment
policies, part or all of the equity interests in Taiyuan Basic Points owned by
Messrs. Chen and Yu.  To the extent permitted by the PRC laws, the purchase
price for the entire equity interest shall equal the actual capital
contributions paid into the registered capital of Taiyuan Basic Points by each
of the Taiyuan Basic Points shareholders. The exclusive option agreement has a
30 year term.
  Power of
Attorney.    Messrs. Chen and Yu each signed a power of
attorney dated July 6, 2010 providing Chongqing the power to act as his
exclusive agent with respect to all matters related to his ownership of Taiyuan
Basic Points, including the right to attend shareholders’ meetings of Taiyuan
Basic Points and the right to exercise voting rights to which he is entitled
under PRC law.
  20
  Share Pledge
Agreement.    Pursuant to share pledge agreements dated
July 6, 2010, each of Mr. Chen and Mr. Yu pledged his equity interest in Taiyuan
Basic Points to Chongqing to secure Taiyuan Basic Points’ obligations under the
exclusive business cooperation agreement as described above. In addition, the
shareholders of Taiyuan Basic Points agreed not to transfer, sell, pledge,
dispose of or create any encumbrance on any equity interests in Taiyuan Basic
Points that would affect Chongqing’s interests. The share pledge agreement will
expire when Taiyuan Basic Points fully performs its obligations under the
exclusive business cooperation agreement described above.  We are in
the process of registering the share pledges with the local Administration of
Industry and Commerce branch in the PRC.
  Organizational
Structure Chart
  The
following chart reflects our organizational structure since the date of the
business combination between Taiyuan Basic Points and Super
Champ:
  21
  
  22
  Capital
Expenditures
  Our
capital expenditures consist of: (i) payments for
construction in progress, which includes purchases of store decorations and
payments for labor and interior designs, and (ii) expenditures on
property, plant and equipment, which include purchases of office equipment and
transportation vehicles. Capital expenditures were $2.4 million in 2009, $3.1
million in 2008 and $1.4 million in 2007. Expenditures for our construction in progress increased
from $1.8 million in 2008 to $2.2 million in 2009 as a result of added
boutiques. However, expenditureson
property, plant and equipmentdecreased by
79% in 2009 because in 2008 we invested in additional transportation vehicles
for business development purposes as well as office equipment for the new
headquarters we began leasing in 2008.We financed our capital
expenditure requirements from the cash flows generated by our operating
activities.  We did not use any funds borrowed from local banks to
fund our property, plant and equipment expenditures because we are currently
restricted from using these funds for any purpose other than to purchase
inventory.
  We opened
two new CC stores, two Chow Tai Fook stores, two Chow Tai Fook counters and
three FENIX counters during the six months ended June 30, 2010.  We
intend to open six new CC counters and five FENIX counters during the second
half of 2010.  We expect this expansion to cost approximately $7.8
million in the aggregate (including the purchase of inventory for these new
stores), which funds have been financed, and we expect to continue to finance,
from short-term loans and cash flows generated by our operating
activities.
  If
available liquidity is not sufficient to meet our expansion plans, our plans
include considering pursuing financing arrangements. However, there is no
assurance that, if required, we will be able to raise additional capital. In the
alternative, in the event that we raise capital by issuing equity or convertible
debt securities, such issuances could result in substantial dilution to our
shareholders.
  Registered
office
  The
address of our registered office in the British Virgin Islands is: Akara
Building, 24 De Castro Street, Wickhams Cay 1, Road Town, Tortola, British
Virgin Islands. The telephone number of the registered office is (284)
494-4840.
  4B.  Business
Overview
 
 Overview
 
 We are a
leading jewelry brand which designs and retails fine jewelry in China, with
headquarters in Taiyuan City, Shanxi Province, PRC.  Our CC brand was
named as a “famous brand in the China jewelry industry” by the Gems and Jewelry
Trade Association of China in each of the last three years.
  As of
June 30, 2010, we operated an aggregate of forty seven fine jewelry stores and
counters, which we refer to, collectively, as boutiques, located in several
major cities in the PRC, including:
  ·
              twenty
      one jewelry boutiques under our own CC
brand;
  ·
              seventeen
      jewelry boutiques under our own FENIX brand;
and
  ·
              nine
      jewelry boutiques under the Chow Tai Fook
brand.
  Currently,
the majority of our boutiques are located in northern China.  The
remaining boutiques are located in other regions in China.  We intend
to expand our industry position in the fine jewelry market in China by
strengthening our presence in northern China and continuing to expand from
northern China into other regions in China.
  As a fine
jeweler, most of our jewelry products are constructed of 18 karat gold or
platinum, with or without precious gemstones such as diamonds, jade and emerald,
with significant emphasis on quality craftsmanship and distinctive
design.
  We employ
six full-time designers who are responsible for designing approximately 15% of
our CC and FENIX jewelry products in the aggregate.  The remaining 85%
are designed by diamond, gold, platinum and precious stone jewelry
manufacturers.  These designs are made exclusively for us, although
some of the manufacturers own the intellectual property rights to these
outsourced designs.  All of our products are manufactured by third
party suppliers.
  23
  Industry
  China’s
market for jewelry and other luxury goods is expanding rapidly, in large part
due to China’s rapid economic growth. According to the State Bureau of
Statistics of China, China’s real gross domestic product, or GDP, grew by 11.4%,
10.7% and 10.4% in 2007, 2006 and 2005, respectively. In 2008, despite the
global economic slowdown, China’s GDP still grew by approximately 9%, among the
best in the world. Economic growth in China has led to greater levels of
personal disposable income and increased spending among China’s expanding
consumer base. According to the Economist Intelligence Unit, or EIU, private
consumption has grown at a 9% compound annual growth rate, or CAGR, over the
last decade. According to Global Industry Analysts, Inc., or GIA, the precious
jewelry market in China has increased by 35% since 2001, reaching $14.9 billion
in 2006. GIA has predicted that the total market size for precious jewelry will
exceed $18.2 billion in 2010. China has historically been the second largest
gold consumer following India. Gold consumption in China is largely driven by
the demand for gold jewelry, which accounts for 92% of gold consumption.
According to the World Gold Council, the gold jewelry market in China has
sustained stable growth in recent years, with a yearly average growth rate of
over 8% from 2003 to 2006.
  We
believe that China’s gold and precious stone jewelry market will continue to
grow as China’s economy continues to develop. Because gold has long been a
symbol of wealth and prosperity in China, demand for gold jewelry, particularly
karat gold jewelry, is firmly embedded in the country’s culture. The gold and
precious stone jewelry market is currently benefiting from rising consumer
spending and rapid urbanization of the Chinese population. We believe that
jewelry companies like us, with a developed distribution network, attractive
designs and reliable product quality, are well-positioned to build up our brands
and capture an increasing share of China’s growing gold jewelry
market.
  Our
Growth Strategy
  Our goal
is to become one of the dominant fine jewelry retailers in China. The principal
components of the business strategy we implemented to attempt to attain our goal
include the following:
  Expand
the Coverage of Our Retail Network
  We plan
to continue to expand the coverage of our retail network by organic growth
through opening new boutiques in selected locations and by acquiring additional
boutiques as appropriate opportunities arise. Our retail network expanded from
20 boutiques, the vast majority of which were located in northern China, as of
December 31, 2007 to 49 boutiques, which are more geographically diverse within
the PRC, although still heavily concentrated in northern China, as of June 30,
2010.  Our growth strategy includes opening 30 to 50 new retail CC,
FENIX and Chow Tai Fook boutiques in the next three years throughout various
regions throughout China, including Shanghai, Xian, Shenyang, Inner Mongolia,
Chengdu, Wuhan, Beijing, Guangzhou and Chongqing, among others, in order to
become an industry leader in the PRC.
  In 2008,
we opened seven new counters, including three CC counters and four FENIX
counters.  In 2009, we opened thirteen new counters, including six CC
counters, six FENIX counters and one Chow Tai Fook counter.  We opened
two new CC stores, two Chow Tai Fook stores, two Chow Tai Fook counters and
three FENIX counters during the six months ended June 30, 2010.  We
intend to open six new CC counters and five FENIX counters during the second
half of 2010.  We expect this expansion to cost approximately $7.8
million in the aggregate, which funds have been financed, and we expect to
continue to finance, from short-term loans and cash flows generated by our
operating activities.
  We
believe there is a large opportunity for growth in these new markets. Currently,
our CC products are sold primarily in Shanxi Province, where our sales volume
was ranked number one in 2008 and 2009 by the Shanxi Jewelry and Gems Trade
Association. However, Shanxi Province accounted for only 2.2% of the PRC’s gross
domestic product in 2009, raking 18th among 31 provinces and municipalities in
China. Taiyuan City has the 59th largest revenues of all Chinese cities, or
approximately 10% the revenues of Shanghai. Therefore, if we successfully
penetrate other regions in China, as we have in Shanxi, we have the potential to
grow significantly.
  24
  We
believe that our expansion will continue to broaden our revenue base, increase
our gross margins and enhance our overall competitiveness. In evaluating
potential locations for boutiques, we consider, among other factors, market
size, household income levels, consumer spending habits and competition in the
relevant region.
  If
available liquidity is not sufficient to meet our expansion plans, our plans
include considering pursuing financing arrangements. However, there is no
assurance that, if required, we will be able to raise additional capital. In the
alternative, in the event that we raise capital by issuing equity or convertible
debt securities, such issuances could result in substantial dilution to our
shareholders.
  Enhance
Brand Awareness
  We plan
to continue to enhance the appeal of our retail brand names, CC, FENIX and Chow
Tai Fook through effective and systematic marketing campaigns. Although we
believe that our economies of scale are significant in the Chinese fine jewelry
sector, our market share remains relatively small due to the fragmented nature
of the industry. Our retail expansion strategy should create a unified fine
jewelry retail chain under our own CC and FENIX brands, along with Chow Tai
Fook. We plan to continue to market CC, FENIX and Chow Tai Fook as brands
associated with high quality, reliability, credibility and value, which would
set us apart from many products and stores in China’s jewelry
industry.
  Competitive
Strengths
  Our
management believes that the following competitive strengths differentiate us
from other domestic and international competitors and are the key factors to our
success:
  We
are taking advantage of industry trends
  According
to the Global Industry Analysts, Inc., or the GIA, the precious jewelry market
in China has increased by 35% since 2001, reaching $14.9 billion in 2006. the
GIA has predicted that the total market size for precious jewelry will exceed
$18.2 billion in 2010.  We believe that China’s fine jewelry market
will continue to grow as China’s economy continues to develop. Because gold and
diamonds have long been a symbol of wealth and prosperity in China, demand for
jewelry is firmly embedded in the country’s culture. The fine jewelry market is
currently benefiting from rising consumer spending and rapid urbanization of the
Chinese population. We believe that we are well-positioned to build up our
brands and capture an increasing share of China’s growing fine jewelry
market.
  Leading
fine jewelry retailer in China that continues to expand
  We are
one of the leading fine jewelry retailers in China. Our sales volume was ranked
number one in Shanxi Province in 2008 and 2009 by the Shanxi Jewelry and Gems
Trade Association.  In addition, our CC brand was named as a “famous
brand in the China jewelry industry” by the Gems and Jewelry Trade Association
of China in each of the last three years.  We have been expanding, and
plan on continuing to expand, our operations throughout the PRC. China’s market
for jewelry and other luxury goods is expanding rapidly, in large part due to
China’s rapid economic growth. Our management anticipates a growing demand for
our products.
  Rigorous
Quality Control Standards
  We have a
professional in-house quality control team that consists of eight full-time
employees. Three of these employees are qualified to appraise diamond, gold and
precious stones. All of our jewelry suppliers are required to provide us with a
jewelry certificate along with each product, stating the name of the appraisal
institute, the specifications and the appraisal opinions. Upon receiving the
merchandise, our quality control team weighs each gold, platinum or other
precious stone jewelry item and checks its appearance for any damage or
stain.  In addition, our quality control team then appraises the item
for carat weight, clarity, color and cut of each diamond jewelry item. A camera
is installed on the top of each worktable to record the complete process, from
the opening of the package delivered by the suppliers to the completion of the
appraisal.
  25
  In
addition to our in-house capabilities, we have entered into an agreement with
the National Gemstone Testing Center, or the National Center, pursuant to which
the National Center appraises our CC and FENIX products and issues national
certificates for these products.
  Experienced
Management Team
  We
believe that the strength of our management team differentiates us from our
competitors. Under the leadership of our chairman, Mr. Quanxiang Chen, we have
grown our company to become a leading retailer of fine jewelry in China. Mr.
Chen and other senior management members have extensive experience in the
Chinese fine jewelry industry, particularly with respect to retail distribution.
We believe our management team provides our company with a significant advantage
over our competitors in fine jewelry boutiques.  We have also
recruited a highly motivated team of employees across China with a wide array of
local business relationships and in depth understanding of local markets. In
addition, we have instituted a management training program and hold annual
management conferences to reward and motivate strong performers.
  Brand
Recognition and Novel Designs
  We
believe that we differentiate ourselves because we have built a recognized brand
name in the jewelry industry and because we offer superior product quality,
timely delivery and high value. We design novel gold and precious stone jewelry
that incorporates both Chinese and Western designs.  We have developed
international training programs for our design team, which consists of six
professional designers who incorporate Western aesthetics and design
concepts.  We are committed to developing these novel designs, which
enhances brand recognition and thereby maximizes our brand value. We focus on
developing brands which incorporate aesthetic beauty with historical and
philosophical symbols.
  Sales
Channel Advantage
  We sell
our products directly to retail consumers through our retail
boutiques.  Almost all of our boutiques are located in high-quality
malls and department stores in the PRC which attract significant numbers of
middle and upper class individuals to whom we market our products. In this
regard, we have established strategic cooperative relationships with several
well-known PRC malls and department stores which enable us to obtain desirable
locations for our boutiques.
  Our
Products
 We offer
a large selection of distinctively designed, high quality merchandise at various
price levels. Our merchandise includes designer jewelry, diamonds, gemstone and
precious metal jewelry. Our three fine jewelry brands are CC, FENIX and Chow Tai
Fook.  Each brand differentiates itself through a unique selection of
products, many of which are exclusive to our boutiques, marketing store design
and customer experience.  We also offer gold handicraft articles which
include gold bullion, gold bars and gold coins.
  c.comeliness
  Our
twenty one c.comeliness, or CC boutiques, located in department stores and malls
in major cities in the PRC, including Xi’an in Shanxi Province and Wuhan in
Hubei Province, carry a large selection of CC brand name fine jewelry that we
design.  Our CC jewelry is sold exclusively in our
boutiques.  Our CC product offering includes rings, wedding bands,
necklaces, bracelets, brooches and pendants made from platinum, gold, diamond
and precious stones.  We market our CC jewelry as a middle to high-end
fine jewelry brand.
  CC
jewelry is uniquely designed based on a combination of international trends and
Chinese culture.  In addition, those CC items that are manufactured
from red karat gold are unique because red karat gold jewelry is not commonly
sold in the Chinese fine jewelry industry.
  26
  The
geographic breakdown of our CC boutiques within the PRC is as follow: seventeen
boutiques in northern China, three in the northwest and one in the
south.
  FENIX
  Our
seventeen FENIX boutiques, which are located in high-end department stores and
malls in major cities in the PRC, including Shanghai, carry a large selection of
FENIX brand name luxury jewelry that we design.  Our FENIX jewelry is
sold exclusively in our boutiques.  Our FENIX product offering
includes rings, wedding bands, necklaces, bracelets, brooches and pendants made
from diamonds and jade.  We market our FENIX jewelry as a high-end
luxury jewelry brand.  FENIX jewelry is designed with unique
distinctions such as colorful diamonds.
  The
geographic breakdown of our FENIX boutiques within the PRC is as follow: six
boutiques in northern China, two in the northeast, four in the northwest, two in
eastern China and three in the southwest.
  Chow
Tai Fook
  Our nine
Chow Tai Fook boutiques, which are located in department stores and malls in
major cities in the PRC, including Taiyuan, carry a large selection of fine
jewelry designed by Chow Tai Fook.  Chow Tai Fook Jewelry (Shenzhen)
Co., Ltd., a fine jewelry retailer owned by Chow Tai Fook Enterprises, has
retail outlets in several countries, including over 150 retail outlets in
mainland China.  We are a non-exclusive distributor of Chow Tai Fook
products.  Pursuant to our arrangement with Chow Tai Fook, we are
authorized to sell their products in boutiques located in Shanxi Province in
northern China, which is where all nine of our Chow Tai Fook boutiques are
located.  Our Chow Tai Fook product offering includes rings, wedding
bands, necklaces, bracelets, brooches and pendants made from platinum, gold,
diamond and precious stones.  Chow Tai Fook jewelry is marketed as a
middle income luxury jewelry brand.
  Other
Products
  We
operate two Calvin Klein boutiques, which are located in department stores in
the southwestern region of the PRC.  These boutiques carry a large
selection of Calvin Klein designer clothing.  Revenue generated by
these boutiques accounted for approximately 3% of our total revenue in
2009.
  Until
July 2009, we operated one counter for Luk Fook Jewelry and one counter for
Emperor Jewelry, each of which is an independent jewelry company located in the
PRC.  In July 2009, we terminated our arrangement with Emperor and in
July 2010 we terminated our arrangement with Luk Fook in order to focus our
resources on sales of our primary products.
  Store
Operations
  Our
stores are designed to differentiate our brands, create an attractive
environment, make shopping convenient and enjoyable, and maximize operating
efficiencies, all of which enhance the customer experience. We focus on store
layout, with particular focus on arrangement of display cases, lighting, and
choice of materials to optimize merchandise presentation. Promotional displays
are changed periodically to provide variety or to reflect seasonal
events.
  Each of
our stores is led by a store manager who is responsible for store-level
operations, including overall store sales and personnel matters. Administrative
matters, including purchasing, distribution and payroll, are consolidated at the
corporate level to maintain efficiency and lower operating costs. In addition to
selling jewelry, each store also offers standard warranties and return policies,
and provides extended warranty coverage that may be purchased at the customer's
option.
  We have
implemented inventory control systems, extensive security systems and loss
prevention procedures to maintain low inventory losses. We screen employment
applicants and provide our store personnel with training in loss prevention.
Despite such precautions, we experience theft losses from time to time, and
maintain insurance to cover such external losses.
  27
  We
believe it is important to provide knowledgeable and responsive customer service
and we maintain a strong focus on connecting with the customer, both through
advertising and in-store communications and service. Our goal is to form and
sustain an effective relationship with the customer from the first sale by
maintaining a customer connection.
  We
continue to focus on the level and frequency of our employee training programs,
particularly with store managers and key jewelry consultants. We provide sales
and merchandise product training for all store personnel. In addition, we
provide management training for store managers.
 We enter
in sales counter contracts with malls in China from time to
time.  These contracts range in length from six months to 32
months.  Contract renewals must be in writing, and may be applied for
one to three months before the expiration of the agreement.  We
provide products to the malls and assume all insurance and transportation
fees.  We are required to guarantee that our products are of a quality
acceptable to the malls, free of intellectual property issues and we are
responsible for the after-sales service of the products.  Our
customers do not pay us directly.  Rather, the malls receive the
customer payments and forward payment to us.  The malls, generally,
receive a percentage of our profits, with the actual percentage varying among
product types and contracting parties.  If there is a discount offered
on items sold at our sales counters we are required to bear the loss resulting
from such discount.  We receive the remaining income from our sales by
the mall within 15 days of our payment of value-added taxes.  The mall
is required to provide us with a statement of revenues from the sales counters
and we must then pay value-added tax based on that statement.
  We share
the cost of advertising and promotion with the malls.  These fees are
determined on a case by case basis.  The malls must approve our sales
and management team, consisting of one store manager and five shopping
guides.  However, the malls may not increase or decrease our sales and
management team without our consent.  We are responsible for the
salary, benefits and training of the sales and management team.  We
also pay additional annual fees relating to employee welfare, training and VIP
cards.  We are required to maintain sufficient levels of insurance on
the products being sold at the counters and we must charge equal prices for
products in all malls where our products are sold.  If the mall
discovers that our products are priced differently at another mall, we will be
subject to a penalty.  If we plan to change the price of a product we
must notify the mall so that they can adjust prices accordingly.  We
are required to maintain our counter at the mall during the term of the contract
and we may not withdraw without the mall’s consent.  If we withdraw
without consent, we may be subject to a penalty equal to the lost income for the
remainder of the contract period. We have adopted new display methods in our
boutiques in order to reduce the amount of display space needed for our products
without compromising the aesthetics of the display. This allows us to display a
larger selection of jewelry to customers and we believe it will increase our
sales.
  The
purchasing, inspection, labeling, and distribution of the products are completed
by the main office in Taiyuan City, which insures fast turnover of the central
inventory and timely and accurate distribution to the boutiques.
  Competition
  Jewelry
retailing is highly fragmented and competitive. We compete with a large number
of independent regional and local jewelry retailers, as well as with other
national jewelry chains. We also compete with other types of retailers who sell
jewelry and gift items such as department stores, discounters, direct mail
suppliers, online retailers and television home shopping programs. Certain of
our competitors are non-specialty retailers, which are larger and have greater
financial resources than we do. The malls where most of our stores are located
typically contain competing national chains, independent jewelry stores and/or
department store jewelry departments. We believe that we also are competing for
consumers' discretionary spending dollars and, therefore, compete with retailers
who offer merchandise other than jewelry or giftware. Therefore, we compete
primarily on the basis of our reputation for high quality products, brand
recognition, store location, distinctive and value-oriented merchandise,
personalized customer service. Our success also is dependent on our ability to
both create and react to customer demand for specific merchandise
categories.
  Segments
of the fine jewelry industry include international jewelry brand name leaders
such as Cartier, Tiffany and Bvlgari; Hong Kong brands such as Chow Tai Fook and
Luk Fook; traditional and local Chinese brands such as Caibai, Shanxi
Yinxingjin, Shanxi Hongyi Jewelry, Shenyang Cuihua Gold Shop, and Nanjing
Baoqing; and emerging Chinese jewelry brands such as CHJ Jewelry and
Tesiro.
  28
  In major
cities, such as Shanghai, Chengdu and Xi’an, rival Chow Tai Fook retailers, are
the main competitors to our CC boutiques.  However, Chow Tai Fook
focuses primarily on gold, whereas CC has a wide array of gold, platinum and
precious stone products.  In the Shanghai, Suzhou and Xi’an markets,
our FENIX products face competition from ENZO, a company established by a
Shenzhen enterprise that targets high income customers.  In
subordinate cities, local retailers are our primary competitors.
  Seasonality
  Our
business is affected by the seasonal pattern common to most
retailers.  The primary factors that affect the seasonal changes in
our business operations are holidays and traditional Chinese festivals.
Historically, the months that generally generate the greatest revenues for us
are October through January (approximately 36.4% in 2008 and 36.5% in 2009 of
annual revenues), as a result of holidays and festivals that occur during those
months.  Retailers often experience increased sales due to the
week-long public holiday for Chinese National Day, as well as Christmas and New
Year’s Day. These months are also a peak season for marriages and the birth of
newborns in China, which have historically resulted in higher
sales.
  Supplies
and Merchandise Purchasing
  Our principal materials are gold,
platinum, diamonds and other precious stones. The gold industry as a whole is
cyclical and, at times, pricing and availability of gold can be volatile due to
numerous factors beyond our control, including general domestic and
international economic conditions, industry, demand, inflation and expectations
with respect to the rate of inflation, interest rates, gold sales by central
banks, changes in investment trends and international monetary systems and the
effect of changes in the supply and demand for gold in public and private
markets. This volatility can significantly affect the availability and cost of
gold materials for us.  See Risk Factor above, “Volatile gold prices
can cause significant fluctuations in our operating results. Our revenues and
operating income could decrease if gold or precious stone prices decline or if
we are unable to pass price increases on to our customers.”
 
 We
purchase our merchandise from a network of established suppliers and
manufacturers located in the PRC. In 2009, we procured our merchandise from the
following types of suppliers (percentages reflect total supplies, including all
of our products in the aggregate):
  ·
              approximately
      37.7% from gold, platinum and precious stone
  wholesalers;
  ·
              approximately
      25.6% directly from gold, platinum and precious stone jewelry
      manufacturers;
  ·
              approximately
      21.1% from Chow Tai Fook;
  ·
              approximately
      13.1% from diamond suppliers; and
  ·
              approximately
      2.4% from Calvin Klein.
  For our diamond, gold, precious stone
and platinum merchandise, we generally either provide the manufacturers with
designs and other specifications or contract with the manufacturers to design
the merchandise.  The manufacturers in turn provide us with the
merchandise in finished form.  All purchasing is done through buying
offices at our headquarters in Taiyuan.
 
 We also
employ six full-time designers who are responsible for designing approximately
15% of our CC and FENIX jewelry products in the aggregate.  The
remaining 85% are designed by diamond, gold, platinum and precious stone jewelry
manufacturers.  These designs are made exclusively for us, although
some of the manufacturers own the intellectual property rights to these
outsourced designs.  All of our products are manufactured by third
parties.
  29
  During
2008 and 2009, we purchased approximately 56.3% and 49.6%, respectively, of our
finished merchandise from our top five vendors and almost all of our diamonds
from our top five diamond suppliers.  If our supply with these top
vendors were disrupted, particularly at certain critical times during the year,
our sales could be adversely affected in the short term until alternative supply
arrangements could be established.
  Retail
Operations, Marketing and Sales Training
 Retail
Operations
  We
believe we are distinguished from many of our competitors because we offer a
selection of distinctive high quality merchandise, a large percentage of which
is sold exclusively in our boutiques, at a wide range of price points. We keep
the majority of our inventory on display in our stores. Although each store
stocks a representative selection of jewelry, certain inventory is tailored to
meet local tastes and historical merchandise sales patterns of specific
stores.
  We
believe that our boutiques’ elegant surroundings and distinctive merchandise
displays play an important role in providing an atmosphere that encourages
sales. We pay careful attention to detail in the design and layout of each
store, particularly lighting, colors, choice of materials and placement of
display cases. We also use window displays as a means of attracting walk-in
traffic and reinforcing our distinctive image. Window displays are frequently
changed to provide variety and to reflect seasonal events such as
holidays.
  Customer
Self-Service Sales System
  We
created a new sales intranet website in 2009 and have utilized this system in
all of our boutiques since November 2009. This system enables customers to
browse all of the products in stock in all of our
boutiques.  Customers can choose to purchase any product available in
any of our boutiques or to design customized products. Any selected products
which are not in stock in the boutique in which a customer makes a purchase are
delivered directly to the customer’s home.  By enabling customers to
select products stored in any of our boutiques from any location and delivering
the products to their homes, we expect to increase our customers’ brand loyalty
without having to expend significant resources to increase inventory levels at
our boutiques.
  Advertising
and Promotion
  We market
our products through the following channels:
  ·            Media.  We
advertise our products in newspapers and magazines, on television and radio,
using outdoor advertising, such as advertisements painted on motor vehicles and
other new media sources such as the internet, focus media, and Multi Messaging
Service. These media are often used to target particular customers, such as high
income consumers in business and financial magazines for our FENIX
products.  In 2008 and 2009, media advertising comprised approximately
50% of our total marketing budget.
  ·            VIP
memberships.  We have a private customer service program in
which we analyze characteristics of our largest purchasers and provide
customized service in order to increase these customers’ brand loyalty. In 2008
and 2009, investment in VIP memberships comprised approximately 25% of our total
marketing budget.
  ·            In-store
promotions.  We hold promotional activities in department
stores, such as discounts on merchandise during holidays, based on our sales
targets and the demands of our customers. The promotions generally last up to
five days and have generated positive results with limited investment. In 2008
and 2009, these activities accounted for approximately 10% of our total
marketing budget.
  ·            Publicity
events.  When promoting a new product or operating a new
counter or store, we generally sponsor a publicity event to increase our brand’s
influence, such as parties with celebrity guests. Publicity events accounted for
approximately 10% of our total marketing budget in 2008 and
2009.
  30
  ·            Cross-industry
cooperation.  We cooperate with companies in other industries
with the same customer base. For example, customers may receive vouchers or
discounts on our FENIX products when they purchase merchandise from a high-end
clothing manufacturer. These activities accounted for approximately 5% of our
total marketing budget in 2008 and 2009.
  In 2008
and 2009, our total marketing budget was $1.6 million and $1.2 million,
respectively.  As of June 30, 2010, there were 26 employees in
our marketing department.
  Personnel
and Training
  We place
substantial emphasis on the professionalism of our sales force to maintain our
position as a leading fine jeweler. We strive to hire only highly motivated,
professional and customer-oriented individuals. All new sales professionals
attend an intensive training program where they are trained in technical areas
of the jewelry business, specific sales and service techniques and our
commitment to client service. Management believes that attentive personal
service and knowledgeable sales professionals are key components to our
success.
  Our
Customers
 We
generate all of our revenues domestically from sales to retail customers at our
boutiques. During the years ended December 31, 2009 and 2008, approximately 26%
and 31%, respectively, of our sales were generated from our boutiques located in
Hua Yu, which is a department store and the largest business group in Shanxi
Province. The largest markets for our products are in the Shanxi Province,
Chengdu City of the Sichuan Province and Shenyang City of the Liaoning
Province.
  Information
Technology
  We have
developed a logistics network and management system through years of iterative
design and adaptation. We have tailored this system for our business needs and
the particularities of China’s fine jewelry sector. We can deliver products to
any of the cities in which any of our boutiques is located, typically within 48
hours. We have capitalized on our economies of scale by centralizing our
logistics management to serve our retail distribution network. Our logistics
system administers procurement, inventory, warehouse and transportation
management, product and order tracking, reporting, and other services. This
integrated system allows us to respond quickly to product demand in multiple
markets while increasing efficiency and minimizing costs.
  Our
information management systems are updated regularly and are designed to
minimize handling and administrative costs, as well as ensure prompt ordering
and timely arrival of our products. The system delivers real-time updates on
sales of each specific stock-keeping unit, enabling us to fine-tune merchandise
allocation and pricing in response to rapidly changing market demands. Our
detailed sales information allows us to evaluate the impact of advertisements
and promotional events by region, product and price. This information also helps
us develop effective marketing activities and minimize costs.
  Our
technology systems provide information necessary for (i) store operations;
(ii) inventory control; (iii) profitability monitoring; (iv) customer
care; (v) expense control programs; and (vi) overall management
decision support. Significant data processing systems include point-of-sale
reporting, purchase order management, replenishment, inventory management,
merchandise planning and control, payroll, general ledger, sales audit, and
accounts payable. Bar code ticketing and scanning are used at all point-of-sale
terminals to ensure accurate sales and margin data compilation and to provide
for inventory control monitoring. Information is made available online to
merchandising staff on a timely basis, thereby increasing the merchants' ability
to be responsive to changes in customer behavior. We are also improving the
connectivity between stores and our headquarters to enhance operating
effectiveness.
  Our
information technology systems and processes allow management to monitor, review
and control operational performance on a daily, monthly, quarterly and annual
basis for each store and each transaction. Senior management can review and
analyze activity by store, amount of sale, terms of sale or employees who sell
the merchandise.
  31
  Intellectual
Property
 We rely
on a combination of trademarks and confidentiality agreements to protect our
intellectual property.
  With
respect to proprietary know-how that is not patentable and processes for which
patents are difficult to enforce, we rely on, among other things, trade secret
protection and confidentiality agreements to safeguard our
interests.  Our employees generally enter into a confidentiality
agreement with us as part of their employment agreement by which our employees
have agreed that we hold the IP rights to the inventions, designs and
technologies developed by the employee during their employment. Intellectual
property protection and confidentiality terms are inserted in all of our
processing contracts with manufacturers. We are not aware of any material
infringement of our intellectual property rights.
  Trademarks
  We have
been granted exclusive licenses to use two trademarks, both of which
are registered trademarks in the PRC.  The owner of the trademarks,
Man Yu, is the wife of Mr. Chen, our Chairman and Chief Executive
Officer.  Pursuant to the licensing agreement between Ms. Yu and
Chongqing, we have the exclusive right to these trademarks. We also have a
non-exclusive license to use the Chow Tai Fook trademark.
  The
following table provides the name, trademark number and expiration date of the
trademarks that we license exclusively:
  Name
      of Trademark
              
              Trademark
      No.
              
              Expiration
      Datec.comeliness
              
              3123742
              
              December
      20, 2013FENIX
              
              3396432
              
              August
      20, 2014
 
 Governmental
Regulations
  Business
license
  Any
company that conducts business in the PRC must have a business license that
covers a particular type of work. Our business license covers our present
business of jewelry retail. Prior to expanding our business beyond that of our
business license, we are required to apply and receive approval from the PRC
government.
  Employment
laws
  We are
subject to laws and regulations governing our relationship with our employees,
including wage and hour requirements, working and safety conditions, citizenship
requirements, work permits and travel restrictions. These include local labor
laws and regulations, which may require substantial resources for compliance.
China’s National Labor Law, which became effective on January 1, 1995, and
China’s National Labor Contract Law, which became effective on January 1, 2008,
permit workers in both state and private enterprises in China to bargain
collectively. The National Labor Law and the National Labor Contract Law provide
for collective contracts to be developed through collaboration between the labor
union (or worker representatives in the absence of a union) and management that
specify such matters as working conditions, wage scales, and hours of work. The
laws also permit workers and employers in all types of enterprises to sign
individual contracts, which are to be drawn up in accordance with the collective
contract.
  Value
added tax
  Pursuant
to the Provisional Regulation of China on Value Added Tax and their implementing
rules, all entities and individuals that are engaged in the sale of goods, the
provision of repairs and replacement services and the importation of goods in
China are generally required to pay VAT at a rate of 17.0% of the gross sales
proceeds received, less any deductible VAT already paid or borne by the
taxpayer. Furthermore, when exporting goods, the exporter is entitled to a
portion, or in some instances all, of the VAT refund that the exporter
previously paid.
  32
  Foreign
currency exchange
  Under the
PRC foreign currency exchange regulations applicable to us, the Renminbi is
convertible for current account items, including the distribution of dividends,
interest payments, and trade and service-related foreign exchange transactions.
Conversion of Renminbi for capital account items, such as direct investment,
loan, security investment and repatriation of investment, however, is still
subject to the approval of the PRC State Administration of Foreign Exchange, or
SAFE. Foreign-invested enterprises may buy, sell and/or remit foreign currencies
only at those banks authorized to conduct foreign exchange business, after
providing valid commercial documents and, in the case of capital account item
transactions, obtaining approval from SAFE. Capital investments
by foreign-invested enterprises outside of China are also subject to
limitations, which include approvals by the Ministry of Commerce, SAFE and the
State Reform and Development Commission.
  Mandatory
statutory reserve and dividend distributions
  Under
applicable PRC regulations, foreign-invested enterprises in China may pay
dividends out of their accumulated profits only, if any, as determined in
accordance with PRC accounting standards and regulations. In addition, a
foreign-invested enterprise in China is required to set aside at least 10% of
its after-tax profit based on PRC accounting standards each year for its general
reserve until the cumulative amount of such reserve reaches 50% of its
registered capital. These reserves are not distributable as cash dividends. The
board of directors of a foreign-invested enterprise has the discretion to
allocate a portion of its after-tax profits to staff welfare and bonus funds,
which may not be distributed to equity owners except in the event of
liquidation.
  4C.  Organizational
Structure
  See
“—History and Development of the Company” above in subsection A of Item 4 for a
description of our organizational structure.
  4D.  Property,
Plants and Equipment
  On August
1, 2008, we entered into a lease agreement with Quanxiang Chen, our Chairman and
Chief Executive Officer, for office space located in Taiyuan City, Shanxi
Province, with a total area of 1,656 square meters. The lease is for a ten year
term, which terminates on August 1, 2018. The monthly rent is approximately
$8,500.  We use this space as office space and our
headquarters.  Management believes the lease terms are at least as
favorable to us as we could have obtained from unaffiliated
parties.
  All of
our boutiques are leased and are predominantly located in regional or
super-regional malls or department stores. Our new boutique lease has a term
ranging from six to thirty four months, and an average of approximately one
year, with an option to renew for additional terms. These leases generally
include a minimum base rent, a percentage rent payment based on store sales and
certain other occupancy charges. As of June 30, 2010, the average remaining life
of the leases for our boutiques was six month. While there can be no assurance,
we expect generally to be able to renew desirable leases as they
expire.
  As of
June 30, 2010, we operated a total of 13 stores and 36 counters.  The
average size of a store is 290 square meters and the average size of a counter
is 87.5 square meters.  In the aggregate, our boutiques are 6,925
square meters.
  We
consider the CC stores located on Changfeng Road and Kaihuasi Road, both in
Taiyuan City, PRC, to be our primary CC stores because of their superior
location, abundance of inventory and full selection of products.
  We do not
lease any other properties, or own any land use rights or real
property.  We believe that our current property rights are sufficient
for our current operations.
  ITEM
      4A.
              UNRESOLVED
      STAFF COMMENTS
  Not
applicable
  33
  ITEM
      5.
              OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS
  The
following discussion and analysis should be read in conjunction with our
consolidated financial statements, the notes to those financial statements and
other financial data that appear elsewhere in this report. In addition to
historical information, the following discussion contains forward-looking
statements based on current expectations that involve risks and uncertainties.
Actual results and the timing of certain events may differ significantly from
those projected in such forward-looking statements due to a number of factors,
including those set forth in “Risk Factors” and elsewhere in this report. Our
consolidated financial statements are prepared in conformity with U.S.
GAAP.
  5A.  Operating
Results
  Overview
  General
  We are a
leading jewelry brand which designs and retails fine jewelry in China, with
headquarters in Taiyuan City, Shanxi Province, PRC.  Our CC brand was
named as a “famous brand in the China jewelry industry” by the Gems and Jewelry
Trade Association of China in each of the last three years.
  As of
June 30, 2010, we operated an aggregate of forty seven fine jewelry stores and
counters, which we refer to, collectively, as boutiques, located in several
major cities in the PRC, including:
  ·
              twenty
      one jewelry boutiques under our own CC
brand;
  ·
              seventeen
      jewelry boutiques under our own FENIX brand;
and
  ·
              nine
      jewelry boutiques under the Chow Tai Fook
brand.
  Currently,
the majority of our boutiques are located in northern China.  The
remaining boutiques are located in other regions in China.  We intend
to expand our industry position in the fine jewelry market in China by
strengthening our presence in northern China and continuing to expand from
northern China into other regions in China.
  As a fine
jeweler, most of our jewelry products are constructed of 18 karat gold or
platinum, with or without precious gemstones such as diamonds, jade and emerald,
with significant emphasis on quality craftsmanship and distinctive
design.
  On
September 10, 2010, Super Champ and its sole shareholder entered into a
share exchange agreement with Square C, a British Virgin Islands limited
liability company organized on April 9, 2010 under the BVI Act, and the
shareholders of Square C. Pursuant to the share exchange agreement, Super Champ
acquired from the shareholders of Square C all of the issued and
outstanding shares of Square C, in exchange for an aggregate of 7,000,000 newly
issued ordinary shares issued by Super Champ to the shareholders of Square
C.  In addition, the sole shareholder of Super Champ sold all of the
5,000,000 ordinary shares of Super Champ that were issued and outstanding prior
to the business combination, to the shareholders of Square C for cash, at a
price of $0.03 per share.  As a result, the individuals and entities
that owned shares of Square C prior to the business combination acquired 100% of
the equity of Super Champ, and Super Champ acquired 100% of the equity of Square
C.  Square C is now a wholly owned subsidiary of Super
Champ.  In conjunction with the business combination, Super Champ
filed an amended charter, pursuant to which Super Champ changed its name to CC
Jewelry Co., Ltd., changed its fiscal year end to December 31, changed the par
value of its ordinary shares to $0.01 per share and increased its authorized
shares to 100,000,000.  Upon the consummation of the business
combination, we ceased to be a shell company.
  34
  Important
Factors Affecting our Financial Condition and Results of Operations, and
Existing Trends
  Our
financial condition and results of operations have been, and will continue to
be, affected by a number of factors, including those set forth
below.
  Terms
of payments by malls and department stores
  Our
financial condition depends in part on how quickly we can collect revenues from
the malls and department stores in which we operate.  Generally, our
arrangements with malls and department stores, with respect to our counters,
provide that payments from customers are to be paid to the mall or department
store.  Approximately fifteen to ninety days later, the mall or
department store forwards these customer payments to us after deducting rent and
other related fees or a percentage of our profits.
  Our sales
counter contracts with malls and department stores in the PRC range in duration
from six months to 32 months.  Contract renewals must be in writing,
and may be applied for one to three months before the expiration of the
agreement.  We deliver all of our merchandise to our counters and
assume all insurance and transportation fees.  We are required under
our sales contracts with the malls to guarantee that our products are of a
quality acceptable to the malls and are free of intellectual property
issues.  We are responsible for the after-sales service of the
products.  The individual customers that purchase jewelry in our
stores do not pay us directly.  Rather, the malls receive payments
from customers and forward payment to us.  The malls generally deduct
either rent and other related payments or a percentage of our profits, with the
actual percentage varying among product types and contracting
parties.
  In 2009,
our accounts receivable increased by approximately $2.9 million as compared to
2008.  The primary reason for this increase is that during 2009, we
extended the three-month credit term generally granted to Hua Yu pursuant to our
agreement with Hua Yu to six months with respect to customer payments in the
amount of $2.4 million.  Hua Yu is a department store located in
Taiyuan, Shanxi Province, in which we have one CC counter, one Chow Tai Fook
counter and one FENIX counter, which collectively generated approximately 24% of
our total revenues in 2009.  The $2.4 payment was subsequently repaid
in full in June 2010.  We do not expect this trend to continue with
Hua Yu or other malls or convenience stores in the future.
  Seasonality
of our retail business
  Our
business is affected by the seasonal pattern common to most
retailers.  The primary factors that affect the seasonal changes in
our business operations are holidays and traditional Chinese festivals.
Historically, our highest quarterly net sales occur during the fourth quarter,
as customers purchase higher levels of jewelry during the holiday
season.  In the fourth quarter, retailers often experience increased
sales due to the week-long public holiday for Chinese National Day, as well as
Christmas and New Year’s Day. This quarter is also a peak season for marriages
and the birth of newborns in China, which have historically resulted in higher
sales.  Historically, the months that generally generate the greatest
revenues for us are October through January (approximately 36.4% in 2008
and 36.5% in 2009 of annual revenues), as a result of holidays and
festivals that occur during those months.  We expect this trend to
continue.
  Any
significant decrease in net sales during the holiday or Chinese festival seasons
would have a material adverse effect on our business, our financial condition
and our results of operations. In addition, in order to prepare for these
seasons, we must order and keep in stock significantly more merchandise than we
carry during other periods during the year. This inventory build-up may require
us to expend cash faster than we generate by our operations during these
periods. Any unanticipated decrease in demand for our merchandise during this
peak shopping season could require us to sell excess inventory at a substantial
markdown, which could have a material adverse effect on our business and
profitability.
  Because
of the briefness of these selling periods, the opportunity for sales to recover
in the event of a disruption or other difficulty is limited, and the impact of
disruptions and difficulties can be significant. For instance, adverse weather,
a significant interruption in the receipt of products or a sharp decline in mall
traffic occurring during one of these selling periods could materially impact
sales for the affected period and, because of the importance of each of these
selling periods, commensurately impact overall sales and
earnings.
  35
  Product
mix
  Our
results of operations depend in part on the product mix that we attain during a
particular financial reporting period.  We sell our jewelry according
to consumer demands.  The sales prices of our FENIX jewelry are higher
than the prices of our CC and Chow Tai Fook jewelry because they are more
customized and they are marketed to high income individuals.  Since
the increase in our expenses in designing and selling FENIX jewelry is less than
the increased sales prices, these products generate higher profit margins than
our CC and Chow Tai Fook jewelry.  Specifically, our profit margins
for our primary products were as follows in 2008 and 2009:
  2008
                        
                        
                        2009FENIX
                        
                        
                        55
                        %
                        
                        
                        47
                        %CC
                        
                        
                        24
                        %
                        
                        
                        29
                        %Chow
      Tai Fook
                        
                        
                        20
                        %
                        
                        
                        23
                        %
  In 2008,
sales of our CC products generated approximately 58% of our total revenue, an
increase of approximately five times the revenue that our CC products generated
in 2007.  The reason for this increase is that during 2008 we
increased our sales efforts by hosting promotional activities, increasing
advertisements and operating new boutiques in order to increase brand awareness
of our CC jewelry in Shanxi Province in the PRC.  Once we
achieved targeted levels of revenue for our CC jewelry, beginning in 2009,
we increased our sales efforts for our FENIX jewelry by hosting promotional
activities and increasing advertisements and other publicity events in order to
increase brand awareness of our FENIX jewelry in Shanxi Province in the
PRC.  As a result, in 2009, sales of our FENIX products increased by
87.5% while sales of our CC products decreased slightly from 2008
levels.  Nonetheless, because of a decrease in sales of our Chow Tai
Fook products due to increased competition in 2007, our overall revenues
decreased slightly as compared to 2008.
  In order
to attract new customers, enhance our brand awareness and increase sales volume,
we offer promotional discounts and increase our marketing efforts.  In
2008, we opened three CC counters and focused our promotional and advertising
activities on these products.  Consequently, the profit margin for
these products decreased in 2008.  Similarly, in 2009, we opened six
FENIX counters and focused our promotional and advertising activities on these
products.  Consequently, our profit margin for these products
decreased in 2009.  Profit margins for Chow Tai Fook products remained
relatively stable in 2008  an 2009 because Chow Tai Fook is a mature
brand.  In 2009, we phased out the operations of our Luk Fook and
Emperor jewelry stores, which together generated approximately $2.8 million, or
5% of our total revenue, in 2008, in order to focus our resources on the growth
of our CC, FENIX and Chow Tai Fook stores.
  We expect
sales volume of our CC, FENIX and Chow Tai Fook jewelry to increase over time as
we increase the number of our boutiques and as our CC and FENIX brands continue
to gain recognition as leaders in the PRC fine jewelry industry.  We
also anticipate sales of our CC and FENIX brands continuing to increase
proportionally in 2010 and beyond.  Specifically, we estimate that for
the year ending December 31, 2010, sales of our CC brand, FENIX brand and Chow
Tai Fook brand will represent 65%, 18% and 15% of our revenues,
respectively.  We anticipate sales of our CC and FENIX brands
continuing to increase proportionally beyond 2010.
  Increasing
number of boutiques and geographical locations
  In order
to try to capture additional market share for our jewelry, we have increased
over the past several years, and plan to continue to increase, the number of our
boutiques in various regions in the PRC.  Additional stores and
counters have had, and could continue to have, a significant effect on our
results of operations, by increasing our brand awareness and allowing us to
generate higher revenues and profits.
  36
  Our
retail network expanded from 20 boutiques as of December 31, 2007 to 49 as of
June 30, 2010.  As a result, our revenues and net income grew from
$32.4 million and $2.0 million, respectively, in 2007, to $58.0 million and $6.2
million respectively in 2009.  Our growth strategy includes opening an
aggregate of 30 to 50 new retail CC, FENIX and Chow Tai Fook boutiques in the
next three years in various regions throughout China, including Shanghai, Xi’an,
Shenyang, Inner Mongolia, Chengdu, Wuhan, Beijing, Guangzhou and Chongqing,
among others, in order to try to capture additional market share.
  Our
retail expansion strategy will largely depend on our ability to successfully
find sites for, and to open and operate, new retail locations.  Any
failure to successfully open and operate new retail counters and stores could
limit our ability to grow our revenues or profits in the manner we
desire.  In addition, our proposed retail expansion program will place
increased demands on our operational, managerial and administrative
resources.  These increased demands could cause us to operate our
business less effectively, which in turn, could cause deterioration in the
financial performance of our overall business.
  Availability
of raw materials
  We
currently purchase almost all of our raw materials from a small number of
suppliers.  During 2008 and 2009, we purchased approximately 56.3% and
49.6%, respectively, of our gold, platinum and other merchandise from our top
five finished product vendors and almost all of our diamonds from our top five
diamond suppliers.  As we increase the scale of our retail operations,
we may need to establish a more diverse supplier network, while attempting to
continue to leverage our purchasing power to obtain favorable pricing and
delivery terms.  However, in the event that we need to diversify our
supplier network, we may not be able to procure a sufficient supply of high
quality gold, platinum, diamonds or other merchandise at a competitive price,
which could have an adverse effect on our results of operations, financial
condition and cash flows.
  Furthermore,
despite our efforts to control our supply of diamonds and fine jewelry and
maintain good relationships with our existing suppliers, we could lose one or
more of our existing suppliers at any time.  The loss of one or more
key suppliers could increase our reliance on higher cost or lower quality
supplies, which could negatively affect our profitability.  Any
interruptions to, or decline in, the amount or quality of our diamond and fine
jewelry supplies could materially disrupt our production and adversely affect
our business, financial condition and financial prospects.
  Growth
of the Chinese economy
  We
operate our manufacturing facilities in China and derive the majority of our
revenues from sales to customers in China. As such, economic conditions in China
affect virtually all aspects of our operations, including the demand for our
products, the availability and prices of our raw materials and our other
expenses. According to the National Bureau of Statistics of China, China has
experienced significant economic growth, achieving a CAGR, of 12.1% in gross
domestic product from 1997 through 2007. Domestic demand for, and consumption
of, jewelry and gems has increased substantially as a result of this growth.
However, any adverse changes in economic conditions or regulatory environment in
China may have a material adverse effect on our future
performances.
  Costs
of being a public company
  Prior to
the business combination, CC Jewelry did not operate as a public company. CC
Jewelry has incurred significant accounting, legal and other expenses in
connection with the business combination since its year ended December 31, 2009,
and it expects that compliance with its obligations as a public company will
require significant management time and continued increases in general
administrative expenses, including insurance, legal and financial compliance
costs.
  37





Foreign
currency translation




Our
financial statements are expressed in U.S. dollars but the functional currency
of our operating subsidiaries is RMB. Our results of operations are translated
at average exchange rates during the relevant financial reporting periods,
assets and liabilities are translated at the unified exchange rate at the end of
these periods and equity is translated at historical exchange rates. Adjustments
resulting from the process of translating the local currency financial
statements into U.S. dollars are included in determining comprehensive
income.




Description
of Selected Income Statement Items




Revenue.  We
generate revenue from sales of our CC, FENIX, Chow Tai Fook and Calvin Klein
products.  In 2008 and early 2009, we also sold Luk Fook and Emperor
jewelry.




Cost of goods
sold.  Cost of goods sold includes costs related to the
purchase of merchandise from third parties, as well as receiving and
distribution costs.




Selling
expenses.  Selling expenses include costs associated with the
selling and promotion of products, including sales commissions, payroll,
traveling expenses, transportation expenses and advertising
expenses.




Advertising
expenses.  Advertising
expenses consist of marketing products through the
media, VIP memberships, in-store promotions, publicity events and cross-industry
cooperation (see “Advertising and Promotion” in “Retail Operations, Marketing
and Sales Training” in item 4B, Business Overview).




General and administrative
expenses.  General and administrative expenses consist
primarily of employee remuneration, payroll taxes and benefits, general office
expenses and depreciation.  We expect administrative expenses to
continue to increase as we incur additional expenses related to costs of
compliance with securities laws and other regulations, including increased audit
and legal fees and investor relations expenses.




Interest
expenses.  Interest expenses consist of interest expense on
bank loans.




Income Taxes.  The
PRC Enterprise Income Tax Law imposed an income tax rate of 25% beginning in
2008 for enterprises registered in the PRC.  As our income tax
obligations increase over time as a result of higher revenue, our net income
will be affected.




Results
of Operations


The
following table sets forth key components of our results of operations for the
periods indicated, in dollars and as a percentage of revenue.




(All
amounts in U.S. dollars, except for percentages)


For Year Ended December 31,2009
                    
                    
                    2008(Audited)
                    
                    
                    (Audited)USD
                    
                    
                    % of
                      Revenue
                    
                    
                    USD
                    
                    
                    % of
                      RevenueRevenue,
      net
                    
                    $
                    58,920,419
                    
                    
                    
                    100
                    %
                    
                    $
                    59,767,770
                    
                    
                    
                    100
                    %Cost
      of goods sold
                    
                    
                    41,180,014
                    
                    
                    
                    69.9
                    %
                    
                    
                    44,148,820
                    
                    
                    
                    73.9
                    %Gross
      profit
                    
                    
                    17,740,405
                    
                    
                    
                    30.1
                    %
                    
                    
                    15,618,950
                    
                    
                    
                    26.1
                    %Operating
      expensesSelling
      expenses
                    
                    
                    5,103,750
                    
                    
                    
                    8.7
                    %
                    
                    
                    5,946,222
                    
                    
                    
                    9.9
                    %Advertising
      expense
                    
                    
                    1,216,275
                    
                    
                    
                    2.1
                    %
                    
                    
                    1,591,568
                    
                    
                    
                    2.7
                    %General
      and administrative expenses
                    
                    
                    1,979,296
                    
                    
                    
                    3.3
                    %
                    
                    
                    2,590,548
                    
                    
                    
                    4.3
                    %Total
      operating expenses
                    
                    
                    8,299,321
                    
                    
                    
                    14.1
                    %
                    
                    
                    10,128,388
                    
                    
                    
                    16.9
                    %Income
      from operations
                    
                    
                    9,441,084
                    
                    
                    
                    16.0
                    %
                    
                    
                    5,490,612
                    
                    
                    
                    9.2
                    %Other
      income expensesInterest
      expenses, net
                    
                    
                    (957,643
                    )
                    
                    
                    1.6
                    %
                    
                    
                    (1,051,180
                    )
                    
                    
                    1.8
                    %Other
      expenses, net
                    
                    
                    (85,970
                    )
                    
                    
                    0.1
                    %
                    
                    
                    (47,048
                    )
                    
                    
                    0.1
                    %Total
      other expenses
                    
                    
                    (1,043,613
                    )
                    
                    
                    
                    
                    
                    
                    (1,098,228
                    )Income
      before income taxes
                    
                    
                    8,397,471
                    
                    
                    
                    14.3
                    %
                    
                    
                    4,392,384
                    
                    
                    
                    7.3
                    %Income
      taxes
                    
                    
                    (2,170,785
                    )
                    
                    
                    3.7
                    %
                    
                    
                    (1,179,861
                    )
                    
                    
                    2.0
                    %Net
      income
                    
                    
                    6,226,686
                    
                    
                    
                    10.6
                    %
                    
                    
                    3,212,523
                    
                    
                    
                    5.3
                    %Other
      comprehensive incomeForeign
      currency translation adjustments
                    
                    
                    55,309
                    
                    
                    
                    0.1
                    %
                    
                    
                    1,104,798
                    
                    
                    
                    1.9
                    %Comprehensive
      income
                    
                    $
                    6,281,995
                    
                    
                    
                    10.7
                    %
                    
                    $
                    4,317,321
                    
                    
                    
                    7.2
                    %




38




Revenue,
net.  During the year ended December 31, 2009, we had revenues
of approximately $58.9 million as compared to revenues of approximately $59.8
million during year ended December 31, 2008, a decrease of $0.9 million, or
1.4%. The slight decrease in our revenues during the year ended December 31,
2009 was attributable to a decrease in the volume of sales of our CC products in
2009 and a 20.8% decrease in revenues from sales of Chow Tai Fook jewelry as a
result of lower sales volume attributable to gold jewelry retail competitors
penetrating Shanxi Province in 2009. We also phased out our Luk Fook and Emperor
jewelry stores in 2009.  These decreases were offset by a 87.5%
increase in revenues from sales of our FENIX jewelry in 2009 as compared to
2008.




The
following table provides a breakdown of revenues of each of our brands during
the years December 31, 2009 and 2008:




Year ended December 31,(in millions of U.S. dollars)2009
                          
                          
                          
                          
                          
                          2008Revenue
                          
                          
                          % of total
                            revenue
                          
                          
                          Revenue
                          
                          
                          % of total
                            revenue
                          
                          
                          Change from
                            the same period
                            last yearBrands:CC
                          
                          $
                          34.2
                          
                          
                          
                          58
                          %
                          
                          $
                          35.8
                          
                          
                          
                          60
                          %
                          
                          
                          (0.4
                          )%Chow
      Tai Fook
                          
                          $
                          11.9
                          
                          
                          
                          20
                          %
                          
                          $
                          14.8
                          
                          
                          
                          25
                          %
                          
                          
                          (19.6
                          )%FENIX
                          
                          $
                          9.0
                          
                          
                          
                          15
                          %
                          
                          $
                          4.8
                          
                          
                          
                          8
                          %
                          
                          
                          87.5
                          %Other
      (1)
                          
                          $
                          3.8
                          
                          
                          
                          7
                          %
                          
                          $
                          4.6
                          
                          
                          
                          7
                          %
                          
                          
                          (17.4
                          )%Total
                          
                          
                          58.9
                          
                          
                          
                          100
                          %
                          
                          $
                          60.0
                          
                          
                          
                          100
                          %
                          
                          
                          –





(1)
Includes sales of Calvin Klein, Luk Fook and Emperor products.





Cost of goods
sold.  Cost of goods sold was approximately $41.2 million
during the year ended December 31, 2009, as compared to approximately $44.1
million during the year ended December 31, 2008, representing a decrease of 6.7%
or approximately $2.9 million. This decrease resulted from the change of our
product mix in 2009 as compared to 2008.  The cost of goods sold for
our FENIX jewelry is proportionately lower than the cost of goods sold for our
other products. Because sales of our FENIX products increased 87.5% in 2009 as
compared to 2008, our cost of goods sold decreased during that
period.  As a percentage of revenue, cost of goods sold decreased from
73.9% to 69.9% during the year ended December 31, 2009.




Gross profit and gross
margin.  Our gross profit is equal to the difference between
our revenue and our cost of goods sold. Our gross profit increased 13.7% to
approximately $17.7 million during the year ended December 31, 2009, from
approximately $15.7 million for the same period in 2008.  For the
years ended December 31, 2009 and 2008, our gross margin was 30.1% and
26.1%, respectively.  The increase was attributable to the change of
our product mix in 2009, as sales of our higher margin FENIX jewelry
increased.




Selling
expenses.  Selling expenses totaled $5.1 million for the year
ended December 31, 2009, as compared to $5.9 million for the year ended December
31, 2008, a decrease of 14.2%.  This decrease was attributable to our
retaining a smaller sales team for our CC products in 2009 once we achieved
targeted levels of revenue and brand awareness.


39




Advertising
expense.  Advertising expense totaled approximately $1.2
million for the year ended December 31, 2009, as compared to $1.6 million for
the year ended December 31, 2008, a decrease of 23.5%.  This decrease
was attributable to increased brand awareness and brand recognition based on
market efforts made in 2008.




General and administrative
expenses.General and administrative expenses totaled
approximately $2.0 million for the year ended December 31, 2009, as compared to
approximately $2.6 million for the year ended December 31, 2008, representing a
decrease of 23.1%. This decrease was attributable to a decrease in the provision
for doubtful accounts.




Income taxes.  We
incurred income tax expenses of $2.2 million and $1.2 million for the fiscal
years ended December 31, 2009 and 2008, respectively.  The increase
was a result of increased profits in 2009 as compared to 2008.




Net income.  As a
result of the foregoing, our net income totaled approximately $6.2 million for
the year ended December 31, 2009, as compared to approximately $3.2 million for
the year ended December 31, 2008, an increase of 93.8%.




Foreign currency translation
adjustments.  Our financial statements are expressed in U.S.
dollars but the functional currency of our operating subsidiary is RMB. Our
results of operations are translated at average exchange rates during the
relevant financial reporting periods, assets and liabilities are translated at
the unified exchange rate at the end of these periods and equity is translated
at historical exchange rates. Adjustments resulting from the process of
translating the local currency financial statements into U.S. dollars are
included in determining comprehensive income.




Critical
Accounting Policies and Estimates


Management’s
discussion and analysis of its financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with U.S. GAAP. Our financial statements reflect the selection and
application of accounting policies, which require management to make significant
estimates and judgments. See Note 2 to our consolidated financial statements,
“Summary of Significant Accounting Policies.” We believe that the following
paragraphs reflect the most critical accounting policies that currently affect
our financial condition and results of operations.




Basis
of Consolidation
  The
consolidated financial statements include the accounts of Square C and its
wholly owned subsidiaries. Intercompany accounts and transactions have been
eliminated upon consolidation. ASC 810 requires a VIE entity to be consolidated
by a company if that company is subject to a majority of the risk of loss for
the variable interest entity or is entitled to receive a majority of the
variable interest entity’s residual returns. Variable interest entities are
those entities in which the Company, through contractual arrangements, bears the
risks of, and enjoys the rewards normally associated with, ownership of the
entities, and therefore the Company is the primary beneficiary of these
entities.


Foreign
Currency Translation




The
accompanying consolidated financial statements are presented in United States
dollars, while the functional currency of the Company is Renminbi, as determined
based on the criteria of Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) ASC 830 “Foreign Currency
Matters”.  The consolidated financial statements are translated into
United States dollars from RMB at year-end exchange rates as to assets and
liabilities and average exchange rates as to revenues and
expenses.  Capital accounts are translated at their historical
exchange rates when the capital transactions occurred.  The resulting
transaction adjustments are recorded as a component of other comprehensive
income with in shareholders’ equity.  Gains and losses from foreign
currency transactions are included in net income.




2009
                  
                  
                  2008Year
      ended RMB: US$ exchange rate
                  
                  
                  6.8372
                  
                  
                  
                  6.8542Average
      yearly RMB: US$ exchange rate
                  
                  
                  6.8409
                  
                  
                  
                  6.9622





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


40


Revenue
Recognition




Wholesale
revenues are recognized upon delivery and acceptance of merchandise by the
customers while retail revenues are recognized at the “point of sale”, which
occurs when merchandise is taken in an “over-the-counter” transaction, provided
that all of the following criteria are met:




·
            Persuasive
      evidence of an arrangement exists,




·
            Delivery
      has occurred or services have been
rendered,




·
            The
      seller’s price to the buyer is fixed or determinable,
  and




·
            Collectability
      is reasonable assured.




Income
Taxes




Deferred
tax assets and liabilities are recognized for the future tax consequence
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases.  Deferred tax assets and liabilities are measured using enacted
tax rates expected to be applied to taxable income in the years in which those
temporary differences are expected to reverse.  The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the
statement of income in the period that includes the enactment date.  A
valuation allowance is provided for deferred tax assets if it is more likely
than not these items will either expire before the Company is able to realize
their benefits, or that future deductibility is uncertain.




Property,
Plant, and Equipment




Property,
plant and equipment are stated at cost less accumulated depreciation, and
include expenditure that substantially increases the useful lives of existing
assets.




Depreciation
is provided over their estimated useful lives, using the straight-line
method.  Estimated useful lives are as follows:




Leasehold
      improvements
              3-5
      yearsFurniture
      and office equipment
              2-3
      yearsMachinery
      and equipment
              2-3
      yearsMotor
      vehicles
              5
      years




Leasehold
improvements are amortized over the shorter of their estimated useful lives or
the related lease terms. When assets are sold or retired, their costs and
accumulated depreciation are eliminated from the consolidated financial
statements and any gain or loss resulting from their disposal is recognized in
the period of disposition as an element of other income.  The cost of
maintenance and repairs is charged to statement of operations as incurred,
whereas significant renewals and betterments are capitalized.




The
Company reviews the carrying value of property, plant and equipment for
impairment whenever events and circumstances indicate that the carrying value of
an asset may not be recoverable from the estimated future cash flows expected to
result from its use and eventual disposition.  In cases where
undiscounted expected future cash flows are less than the carrying value, an
impairment loss is recognized equal to an amount by which the carrying value
exceeds the fair value of assets.  The factors considered by
management in performing these assessments include current operating results,
trends and prospects, the manner in which the property is used, and the effects
of obsolescence, demand, competition, and other economic
factors.  Based on these assessments there was no impairment at
December 31, 2009 and 2008.


41


Recently
Issued Accounting Pronouncements


In June
2009, the Company adopted Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 105-10 (formerly Statement of
Financial Accounting Standards (“SFAS”) No. 168, the FASB ASC and Hierarchy of
Generally Accepted Accounting Principles, a replacement of FASB Statement No.
162).  ASC 105-10 establishes the FASB ASC as the source of
authoritative accounting principles recognized by the FASB to be applied in
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America.  The adoption
of this standard has no impact on the Company’s consolidated financial
statements.  However, reference to specific accounting standards have
been changed to refer to appropriate section of the ASC.  Subsequent
revisions to GAAP by the FASB will be incorporated into ASC through issuance of
Accounting Standards Updates (“ASU”).




Effective
January 1, 2009, the Company adopted ASC 805 (formerly SFAS No. 141 R,
Business Combinations).  ASC 805 requires an acquirer to measure the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree at their fair values on the acquisition date, with
goodwill being the excess value over the net identifiable assets
acquired.  The adoption of ASC 805 did not have any effect on the
Company’s consolidated financial statements.




Effective
January 1, 2009, the Company adopted ASC 810-10 (formerly SFAS No. 160,
Non-controlling Interests in Consolidated Financial Statements).  This
Statement establishes accounting and reporting standards that require the
ownership interests in subsidiaries’ non-parent owners be clearly presented in
the equity section of the balance sheet; requires the amount of consolidated net
income attributable to the parent and to the non-controlling interest be clearly
identified and presented on the face of the consolidated statement of income;
requires that changes in a parent’s ownership interest while the parent retains
its controlling financial interest in its subsidiary be accounted for
consistently; requires that when a subsidiary is deconsolidated, any retained
non-controlling equity investment in the former subsidiary be initially measured
at fair value and the gain or loss on the deconsolidation of the subsidiary be
measured using the fair value of any non-controlling equity; requires that
entities provide disclosures that clearly identify the interests of the parent
and the interests of the non-controlling owners.  The adoption of ASC
810-10 did not have a significant effect on the Company’s consolidated financial
statements.




On April
1, 2009, the FASB approved ASC 805 (formerly FSP FAS 141R-1, Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies), which amends Statement 141R and eliminates the distinction
between contractual and non-contractual contingencies.  Under ASC 805,
an acquirer is required to recognize at fair value an asset acquired or
liability assumed in a business combination that arises from a contingency if
the acquisition-date fair value of that asset or liability can be determined
during the measurement period. If the acquisition-date fair value cannot be
determined, the acquirer applies the recognition criteria in SFAS No. 5,
Accounting for Contingencies and Interpretation 14, “Reasonable Estimation of
the Amount of a Loss – and interpretation of FASB Statement No. 5,” to determine
whether the contingency should be recognized as of the acquisition date or after
it.  The adoption of ASC 805 did not have a material effect on the
Company’s consolidated financial statements.




ASC
320-10 (formerly FSP FAS 115-2 and FAS 124-2) amends the other-than-temporary
impairment guidance in U.S. GAAP for debt securities to make the guidance more
operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements.  It did not amend existing recognition and measurement
guidance related to other-than-temporary impairments of equity securities. We
are required to adopt ASC 320-10 for our interim and annual reporting periods
ending after June 15, 2009.  ASC 320-10 does not require disclosures
for periods presented for comparative purposes at initial
adoption.  ASC 320-10 requires comparative disclosures only for
periods ending after initial adoption.  The adoption of ASC 320-10 did
not have a material effect on the Company’s consolidated financial
statements.




On April
9, 2009, the FASB also approved ASC 825-10 (formerly FSP FAS 107-1 and APB
28-1,Interim Disclosures
about Fair Value of Financial Instruments )to require disclosures
about fair value of financial instruments in interim period financial statements
of publicly traded companies and in summarized financial information required by
APB Opinion No. 28,Interim
Financial Reporting.  We are required to adopt ASC 825-10 for
our interim and annual reporting periods ending after June 15,
2009.  ASC 825-10 does not require disclosures for periods presented
for comparative purposes at initial adoption. ASC 825-10 requires comparative
disclosures only for periods ending after initial adoption.  The
adoption of ASC 825-10 did not have a material effect on the Company’s
consolidated financial statements.


42




In April
2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly” as incorporated into FASB ASC
820, “Fair Value Measurements and Disclosures”. The guidance relates to
determining fair values when there is no active market or where the price inputs
being used represent distressed sales.  It reaffirms what FASB ASC 820
states is the objective of fair value measurement—to reflect how much an asset
would be sold for in an orderly transaction (as opposed to a distressed or
forced transaction) at the date of the financial statements under current market
conditions.  Specifically, it reaffirms the need to use judgment to
ascertain if a formerly active market has become inactive and in determining
fair values when markets have become inactive.  This guidance is
effective for interim and annual periods ended after June 15, 2009, but entities
may early adopt this guidance for the interim and annual periods ended after
March 15, 2009. The adoption of such standard did not have a material impact on
the Company’s consolidated financial statements.




In August
2009, the FASB issued FASB ASU 2009-05, “Measuring Liabilities at Fair
Value”. FASB ASU 2009-05 amends FASB ASC 820, “Fair Value
Measurements”.  Specifically, FASB ASU 2009-05 provides clarification
that in circumstances in which a quoted price in an active market for the
identical liability is not available, a reporting entity is required to measure
fair value using one or more of the following methods: 1) a valuation technique
that uses a) the quoted price of the identical liability when traded as an asset
or b) quoted prices for similar liabilities or similar liabilities when traded
as assets and/or 2) a valuation technique that is consistent with the principles
of FASB ASC 820 of the Accounting Standards Codification (e.g. an income
approach or market approach).  FASB ASU 2009-05 also clarifies that
when estimating the fair value of a liability, a reporting entity is not
required to adjust to include inputs relating to the existence of transfer
restrictions on that liability.  The adoption of such standard did not
have a material impact on the Company’s consolidated financial
statements.




In May
2009, the FASB issued SFAS No. 165, “Subsequent Events”, (FASB ASC 855-10”)
which establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial
statements.  The statement is effective for interim and annual periods
ended after June 15, 2009.  The standard was subsequently amended by
FASB ASU 2010-09 which exempts an entity that is an SEC filer from the
requirement to disclose the date through which subsequent events have been
evaluated.




In
September 2009, the Emerging Issues Task Force reached final consensus on FASB
ASU 2009-13, “Revenue Arrangements with Multiple Deliverables”.  FASB
ASU 2009-13 addresses how to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting, and how the arrangement
consideration should be allocated among the separate units of
accounting.  This ASU will be effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010.  Early adoption is permitted.  The
adoption of such standard did not have a material impact on the Company’s
consolidated financial statements.




In
December 2009, the FASB issued FASB ASU 2009-17, Consolidation (“FASB ASC 810):
Improvements to Financial Reporting by Enterprises involved with Variable
Interest Entities.  This ASU amends the FASB Accounting Standards
Codification for statement No.167.  In June 2009, the FASB issued SFAS
No.167, Amendments to FASB Interpretation No. 46(R), which requires an
enterprise to perform an analysis and ongoing reassessments to determine whether
the enterprises variable interest or interests give it a controlling financial
interest in a variable interest entity and amends certain guidance for
determining whether an entity is a variable interest entity. It also requires
enhanced disclosures that will provide users of financial statements with more
transparent information about an enterprises involvement in a variable interest
entity.  SFAS No.167 is effective as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15,
2009 and for all interim reporting periods after that, with early application
prohibited.  The adoption of such standard did not have a material
impact on the Company’s consolidated financial statements.




In
January 2010, the FASB issued Accounting Standards Update 2010-05 (ASU 2010-05),
“Compensation – Stock Compensation (Topic 718)”.  This standard
codifies EITF Topic D-110 Escrowed Share Arrangements and the Presumption of
Compensation and is effective immediately. The provisions of ASU 2010-05 did not
have a material effect on the Company’s consolidated financial statements and is
effective immediately.


43


In
January 2010, the FASB issued Accounting Standards Update 2010-06 (ASU 2010-06),
“Fair Value Measurements and Disclosures (Topic 820)”: Improving Disclosures
about Fair Value Measurements.  This amendment to Topic 820 has
improved disclosures about fair value measurements on the basis of input
received from the users of financial statements.  This is effective
for interim and annual reporting periods beginning after December 15, 2009,
except for the disclosures about purchases, sales, issuances, and settlements in
the roll forward of activity in Level 3 fair value
measurements.  Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years.  Early adoption is permitted.  The provisions of ASU
2010-06 did not have a material effect on the Company’s consolidated financial
statements.




In
February 2010, the FASB issued Accounting Standards Update 2010-09 (ASU
2010-09), "Subsequent Events (Topic 855)."  The amendments remove the
requirements for an SEC filer to disclose a date, in both issued and revised
financial statements, through which subsequent events have been
reviewed.  Revised financial statements include financial statements
revised as a result of either correction of an error or retrospective
application of U.S. GAAP.  ASU 2010-09 is effective for interim or
annual financial periods ending after June 15, 2010.  The provisions
of ASU 2010-09 did not have a material effect on the Company’s consolidated
financial statements.




In
February 2010, the FASB issued Accounting Standards Update 2010-10 (ASU
2010-10), "Consolidation (Topic 810)."  The amendments to the
consolidation requirements of Topic 810 resulting from the issuance of Statement
167 are deferred for a reporting entity's interest in an entity (1) that has all
the attributes of an investment company or (2) for which it is industry practice
to apply measurement principles for financial reporting purposes that are
consistent with those followed by investment companies.  An entity
that qualifies for the deferral will continue to be assessed under the overall
guidance on the consolidation of variable interest entities in Subtopic 810-10
(before the Statement 167 amendments) or other applicable consolidation
guidance, such as the guidance for the consolidation of partnerships in Subtopic
810-20.  The deferral is primarily the result of differing
consolidation conclusions reached by the International Accounting Standards
Board ("IASB") for certain investment funds when compared with the conclusions
reached under Statement 167.  The deferral is effective as of the
beginning of a reporting entity's first annual period that begins after November
15, 2009, and for interim periods within that first annual reporting period,
which coincides with the effective date of Statement 167.  Early
application is not permitted.  The provisions of ASU 2010-10 are
effective for the Company beginning in 2010. The adoption of ASU 2010-10 did not
have a material impact on the Company’s consolidated financial
statements.




In March
2010, the FASB issued Accounting Standards Update 2010-11 (ASU 2010-11),
"Derivative and Hedging (Topic 815)."  All entities that enter into
contracts containing an embedded credit derivative feature related to the
transfer of credit risk that is not only in the form of subordination of one
financial instrument to another will be affected by the amendments in this
Update because the amendments clarify that the embedded credit derivative scope
exception in paragraph 815-15-15-8 through 15-9 does not apply to such
contracts.  ASU 2010-11 is effective at the beginning of the reporting
entity's first fiscal quarter beginning after June 15, 2010.  The
provisions of ASU 2010-11 did not have a material effect on the Company’s
consolidated financial statements.




In April
2010, the FASB issued Accounting Standards Update 2010-13 (ASU 2010-13),
"Compensation—Stock Compensation (Topic 718)." This Update provides
amendments to Topic 718 to clarify that an employee share-based payment award
with an exercise price denominated in the currency of a market in which a
substantial portion of the entity’s equity securities trades should not be
considered to contain a condition that is not a market, performance, or service
condition. Therefore, an entity would not classify such an award as a liability
if it otherwise qualifies as equity. The amendments in ASU 2010-13 are effective
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2010. The provision of ASU 2010-13 are not expected to have a
material effect on the Company’s consolidated financial statements.




Governmental
Regulations




See the
discussion under the heading “Governmental Regulations” in Item 4 above for a
discussion of governmental policies or factors that could materially affect our
business.




5B.
Liquidity and Capital Resources


Our cash
requirements consist primarily of funding ongoing operations, including
primarily inventory requirements, capital expenditures for the opening of new
boutiques and debt service.  The major sources of our liquidity for
fiscal years 2009 and 2008 were cash generated from operations and short-term
borrowings, including short-term loans from banks, notes payable and loans from
Mr. Chen.  We expect to continue to finance our operations and working
capital needs in the near future from cash generated from operations and
short-term borrowings. Our cash and cash equivalents are denominated in
RMB.


44




Our
business is highly seasonal. The months that generally generate the greatest
revenues for us are October through January (approximately 36.4% in 2008
and 36.5% in 2009 of annual revenues), as a result of holidays and
festivals that occur during those months.  We purchase inventory in
anticipation of these periods and, as a result, have higher inventory and
inventory financing needs immediately prior to these periods.  Owned
inventory at December 31, 2009 was $31.5 million as compared to $26.0 million at
December 31, 2008.




Our cash
and cash equivalents were approximately $1.5 million at December 31, 2009, as
compared to $0.8 million at December 31, 2008, which increase was due to an
increase in cash provided by our operations as well as increased proceeds from
bank loans.  We believe that our cash reserves, together with expected
cash flow from operations and short-term loans, are sufficient to allow us to
continue to operate for the next 12 months. However, we may sell equity or
obtain credit facilities to enhance our liquidity position or to increase our
cash reserves for future expansion. The sale of additional equity would result
in dilution to our shareholders. The incurrence of indebtedness would result in
increased fixed obligations and could result in operating covenants that would
restrict our operations, or other restrictive covenants.  We cannot
assure you that financing will be available in amounts or on terms acceptable to
us, if at all.




Loans




At
December 31, 2009, we had approximately $8.2 million of short-term bank loans
and $0.8 million of notes payable outstanding, as compared to $3.9 million and
$0.8 million at December 31, 2008, respectively.




Short
term bank loans are obtained from local banks in China. All the short-term bank
loans are repayable within one year.  We may use our short-term
borrowings from local banks for inventory purchases only, and not for
construction or improvement of facilities or other purposes.




The
weighted average annual interest rate of the short-term bank loans was 8.43% and
12.23% as of December 31, 2009 and 2008, respectively. Interest expense related
to these loans was $511,361 and $470,855 for the years ended
December 31, 2009 and 2008, respectively.




We have
not experienced any difficulties in the acquisition and rollover of the
short-term bank loans that we use to fund our daily operations. We anticipate
rollovers of all current facilities that are set to mature in the
2010.




Working
Capital




Our
working capital was approximately $20.9 million at December 31, 2009 as compared
to $15.4 million at December 31, 2008.  This increase was due to
significant increases in our accounts receivable, an increase in inventories
resulting from our opening 13 counters in 2009 compared to 7 counters in 2008
and a decrease in amounts owed to Mr. Chen, our Chairman and Chief Executive
Officer, offset by an increase in short-term bank loans and income taxes
payable.


45




Cash
Flows




The
following table sets forth a summary of our net cash flow information for the
periods indicated:




(All
amounts in U.S. dollars)


Year Ended December 31,2009
                  
                  
                  2008(Audited)
                  
                  
                  (Audited)Net
      cash provided by operating activities
                  
                  $
                  1,393,288
                  
                  
                  $
                  1,821,874Net
      cash used in investing activities
                  
                  
                  (2,454,080
                  )
                  
                  
                  (3,390,796
                  )Net
      cash provided by financing activities
                  
                  
                  4,636,016
                  
                  
                  
                  788,464





Operating
Activities




Net cash
provided by operating activities was approximately $1.4 million in 2009, as
compared to approximately $1.8 million in 2008. This decrease in cash provided
by operating activities was primarily attributable to the following factors: a
decrease in the provision for doubtful accounts following the write-off of $0.7
million owed by a distributor in 2008, an increase of $2.9 million of accounts
receivable in 2009 as compared to a decrease of $1.9 million in 2008 due to an
extension of credit to new department store customers in 2009 and an extension
of credit of $2.4 million in 2009 to Hua Yu, a department store in which we
generate a significant amount of revenue, a decrease in advances to suppliers in
2009 as compared to 2008 due to higher levels of inventory expenditures in 2008
to develop our CC business, a smaller increase in accounts payable in 2009 as
compared to 2008 due to a steady increase of sales in 2009, and a $0.5 million
decrease in other payables and accrued expenses in 2009 due to a decrease in
advertisement expenses.  In addition, retirement of plant, property
and equipment was higher in 2008 as a result of our adjusting this item in 2008
from the prior period by calculating our different brands
separately.




These
amounts were offset by an increase in net income of $6.2 million in 2009 as
compared to $3.2 million in 2008 for the reasons described above under “Results
of Operations,” a $2.1 million increase in income taxes payable in 2009 as
compared to $1.2 million in 2008, a smaller increase in inventories in 2009 as
compared to 2008 due to the need for additional inventory in newly opened
counters in 2008, a decrease in amounts due from related parties and a slight
increase in amounts due to related parties in 2009 as compared to
2008.




Investing
Activities




Net cash
used in investing activities was approximately $2.5 million in 2009, as compared
to $3.4 million in 2008. This decrease in cash used in investing activities was
primarily attributable to a smaller increase in purchases of property, plant and
equipment in 2009 as compared to 2008 because in 2008 we increased purchases of
equipment and transportation vehicles to develop our CC business, and an
increase in long-term equity investments in 2008 due to an investment in Datong
Tianfu, a distributor of ours.  These amounts were offset by a $2.2
million increase in payments for construction in progress in 2009 as compared to
an increase of $1.8 million in 2008 due to the opening of additional
boutiques.




Financing
Activities




Net cash
provided by financing activities for the year ended December 31, 2009 was
approximately $4.6 million, as compared to approximately $0.8 million in 2008.
The increase in cash provided by financing activities was primarily the result
of proceeds from short-term bank loans in the amount of $8.6 million in 2009 as
compared to $4.2 million in 2008 and decreased repayments of notes payable in
2009 as compared to 2008.  These amounts were offset by a decrease in
proceeds from notes payable in 2009 as compared to 2008 and an increase in
repayments of short-term bank loans in 2009 as compared to 2008.




46




Inventory




Inventory
comprises the majority of our assets because many of our jewelry units are very
valuable. Therefore, we have implemented measures to effectively manage the
inventory levels in our retail stores.




We
created a new sales intranet website in 2009 and have utilized this system in
all of our boutiques since November 2009. This system enables customers to
browse all of the products in stock in all of our
boutiques.  Customers can choose to purchase any product available in
any of our boutiques or to design customized products. Any selected products
which are not in stock in the boutique in which a customer makes a purchase are
delivered directly to the customer’s home.  By enabling customers to
select products stored in any of our boutiques from any location and delivering
the products to their homes, we expect to increase our customers’ brand loyalty
without having to expend significant resources to increase inventory levels at
our boutiques.  This information allows us to improve the inventory
turnover rate. Slow selling items are transferred to boutiques where we
determine the products will sell more quickly. The best-selling items are also
transferred among different boutiques to enable shops to focus their attention
on promoting slow-selling items. Out-dated products are sent back to the company
in order to reuse the materials.




Transportation




Our
transportation expenses reflect primarily the expenses of delivering products to
our boutiques, transferring products between boutiques, and distributing other
materials such as promotional displays, advertisements and packaging materials.
We transport products directly to our boutiques, which enables us to avoid the
extra costs of an intermediate and insure the safety and timeliness of product
transportation.




5.C.  Research
and Development, Patents and Licenses, etc.




Research
and Development


We have
research and development staff comprised of six employees.  Our
research and development budget was minimal in the past three
years.




We
regularly train the members of our research and development department in order
to consistently enhance our research and development capabilities in the field
of jewelry design. We have developed a business model that involves a very close
interrelationship between our research and development department and our
product development and marketing departments. As a result, we focus our
research and development activities on projects that would enable us to branch
out our products into new desired markets and increase our market share in
existing markets, such as attending international jewelry shows in the
PRC.




We
believe that our research and development activities for jewelry are effective
because we combine fashion with tradition in design, we appoint and cultivate
designers who specialize in jewelry design and we design products which appeal
to various customer bases and various price points.




5.D.  Trend
Information




See
discussion in Parts A and B of this item.




5.E.  Off-Balance
Sheet Arrangements




We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to our
investors.


47




5.F.  Tabular
Disclosure of Contractual Obligations





Payments due by period (in thousands of dollars)CONTRACTUAL OBLIGATIONS
                      
                      Total
                      
                      
                      Less than 1
                        year
                      
                      
                      1-3 years
                      
                      
                      4-5 years
                      
                      
                      More than
                        5 yearsOperating
      lease obligations (1)
                      
                      
                      
                      
                      
                      $
                      1,082,138
                      
                      
                      $
                      1,861,603
                      
                      
                      $
                      1,425,159
                      
                      
                      $
                      4,153,222Short-term
      debt obligations (2)
                      
                      
                      
                      
                      
                      $
                      8,190,487Total
                      
                      
                      
                      
                      
                      $
                      9,272,625
                      
                      
                      $
                      1,861,603
                      
                      
                      $
                      1,425,159
                      
                      
                      $
                      4,153,222





(1)
            These
      amounts reflect payments due to malls and department stores in which our
      stores are located as well as rent payments for our
      headquarters.  In contrast, fixed rent malls, and stores in
      which our counters are located are paid a percentage of our revenues
      rather than a fixed payment.


(2)
            Attributable
      to short-term bank loans due in
2010.





ITEM
      6.
            DIRECTORS,
      SENIOR MANAGEMENT, AND EMPLOYEES




6.A.  Directors
and Senior Management




Since the
date of our business combination, the following individuals have served as our
directors and executive officers:




Name
                    
                    Positions
                    
                    AgeQuanxiang
      Chen
                    
                    Chairman
      and Chief Executive Officer
                    
                    38Xiaolin
      Mao
                    
                    Chief
      Financial Officer and Director
                    
                    43Xiaoguo
      Cui
                    
                    Vice
      President, Human Resources and Director
                    
                    31Yingyan
      Guo
                    
                    Vice
      President, Brand Development
                    
                    33





Mr.
Quanxiang Chen founded Taiyuan Basic Points in 2002. Mr. Chen entered the market
operation of the gems and jewelry industry in 1997, when China began to issue
business certificates to gold retailers. From 1997 until 2002, Mr. Chen was
involved in the distribution of jewelry, including CC jewelry, which brand he
created in 2000.  Mr. Chen graduated from the College of Electric
Power at Taiyuan Institute of Technology and obtained his degree in power
generation and distribution. Mr. Chen attended the Pearl Diamond Gem and Jewelry
Laboratory of the China National Pearl Diamond Gem and Jewelry Import and Export
Corporation and National Jewelry Quality Supervision and Inspection Center of
China. Mr. Chen obtained a certificate in jewelry appraisal from the National
Jewelry Import and Export Corporation Laboratory, and he was qualified to
analyze gold ornaments by the National Jewelry Testing Center.




Ms.
Xiaolin Mao was appointed as a director and as our Chief Financial Officer
following our business combination.  From 2006 to 2010, she also
served as the CFO of Taiyuan Basic Points Trading Co., Ltd.. From 2003 to 2006,
Ms. Mao was as an auditor with the Shanxi Huaxing accounting firm. Prior to
that, from 1984 to 2003, she worked as section chief of the accounting section
at Linfen Iron & Steel Group, at the large state-owned steel enterprise.
Ms Mao graduated from Shanxi University of Finance and Accounting and
obtained her degree in accounting.  She is a Chinese certified public
accountant and senior accountant.





Mr.
Xiaoguo Cui was appointed as a director and as our Vice President, Human
Resources following the business combination. From 2005 until that time, Mr. Cui
served as the Manager of Human Resources of Taiyuan Basic Points. From 2001 to
2005, Mr. Cui served as Manager of Human Resources Department of Jiangnan
Catering Group, a restaurant group in the Shanxi province. He graduated from the
Shanxi University of Finance & Economics with a degree in Human
Resources




48


Ms.
Yingyan Guo was appointed as our Vice President, Brand Development following our
business combination.  Ms. Guo is responsible for the sales and
boutique management of our company. From 2005 until the business combination,
Ms. Guo served as the Manager of Brand Development of Taiyuan Basic Points. From
2003 to 2006, Ms. Yingyan worked at the Parkson Shopping Center as the sales
floor manager, where she was responsible for managing the jewelry counters and
sales. Prior to that, from 1998 to 2003, she worked at the Huayu Shopping Center
as the sales floor manager, where she was also responsible for managing jewelry
counters and sales. Ms. Yingyan graduated from the Shanxi Finance and Taxation
College with a degree in Financial Accounting.




Each of
our directors will serve as a director until our next annual general meeting and
until his successor is duly elected and qualified.




There are
no family relationships between any of our directors or senior management. There
are no arrangements or understandings with major shareholders, customers,
suppliers or others, pursuant to which any person referred to above was selected
as a director or member of senior management.




6.B.  Compensation




Director
Compensation




Our
directors do not currently receive any cash compensation for their service as
members of the board of directors.




Executive
Compensation




Prior to
the business combination, no executive officer of Super Champ had received any
cash compensation for services rendered to Super Champ.




The
following table shows information concerning the annual compensation to
executive officers of CC Jewelry:




Name
                                    
                                    Year
                                    
                                    Salary
                                    
                                    
                                    Bonus
                                    
                                    
                                    Total
                                      compensationQuanxiang
      Chen
                                    
                                    2009
                                    
                                    $
                                    10,525
                                    
                                    
                                    
                                    –
                                    
                                    
                                    $
                                    10,5252008
                                    
                                    $
                                    10,342
                                    
                                    
                                    
                                    –
                                    
                                    
                                    $
                                    10,342Yingyan
      Guo
                                    
                                    2009
                                    
                                    $
                                    19,997
                                    
                                    
                                    $
                                    3,508
                                    
                                    
                                    $
                                    23,5062008
                                    
                                    $
                                    13,272
                                    
                                    
                                    $
                                    2,241
                                    
                                    
                                    $
                                    15,512Xiaolin
      Mao
                                    
                                    2009
                                    
                                    $
                                    18,419
                                    
                                    
                                    $
                                    3,508
                                    
                                    
                                    $
                                    21,9272008
                                    
                                    $
                                    10,342
                                    
                                    
                                    $
                                    2,241
                                    
                                    
                                    $
                                    12,582Xiaoguo
      Cui
                                    
                                    2009
                                    
                                    $
                                    14,033
                                    
                                    
                                    $
                                    3,508
                                    
                                    
                                    $
                                    17,5422008
                                    
                                    $
                                    9,997
                                    
                                    
                                    $
                                    2,241
                                    
                                    
                                    $
                                    12,238




CC
Jewelry has no options or long-term compensation plans.




Employment
Agreements




We have
entered into an employment agreement with Quanxiang Chen.  Mr. Chen is
employed as Chief Executive Officer of our Company.  The term of his
agreement is from October 1, 2008 until December 31, 2011.  We
compensate Mr. Chen at an annual rate of $10,639.  We may terminate
the employment agreement as specified in the agreement.  Mr. Chen may
terminate the employment agreement as specified in the agreement.  Mr.
Chen has agreed to hold in confidence any confidential information obtained
while employed by us.




6.C.
Board Practices




Board
Composition and Terms of Directors and Officers




Our board
of directors currently consists of three directors: Mr. Chen, Mr. Mao and Mr.
Cui, none of whom qualifies as an independent director.


49




Pursuant
to our memorandum and articles of association, the business of our company is
managed by our board of directors. Commencing with the first annual meeting of
the shareholders, directors are elected for a term of office to expire at the
next succeeding annual meeting of the shareholders after their election. Each
director holds office until the expiration of his or her term of office and
until his or her successor has been elected and qualified, or until his or her
earlier death, resignation or removal by resolution of shareholders or a
resolution of directors in accordance with the memorandum and articles of
association.




The
directors may at any time by resolution of directors appoint any person to be a
director to fill a vacancy. There is a vacancy if a director dies or otherwise
ceases to hold office as a director. The directors may not appoint a director to
fill a vacancy for a term exceeding the term that remained when the person
ceasing to be a director ceased to hold office.




Our
officers are appointed by resolution of our directors and hold office until
removed from office by our directors, whether or not a successor is
appointed.




Committees
of the Board of Directors




We
currently do not have any committees under our board of directors.




Duties
of Directors




Under the
laws of the British Virgin Islands, a director in exercising their powers or
performing their duties shall act honestly and in good faith and in what the
director believes to be the best interests of the company. In fulfilling their
duty of care to us, our directors must ensure compliance with our Memorandum and
Articles of Association. We have the right to take legal action if a duty owed
by our directors is breached.




We have
not entered into a director service contract with any of our
directors




6.D.  Employees




As of
July 31, 2010, we had 804 full-time employees. The following table shows the
breakdown in numbers and percentages of employees by department:




Functions
                
                Number of
                    employees
                
                
                % of totalResearch
      and Development
                
                
                6
                
                
                
                1
                %Quality
      Control
                
                
                16
                
                
                
                2
                %General
      Administration
                
                
                83
                
                
                
                10
                %Purchasing
                
                
                16
                
                
                
                1
                %Sales
                
                
                657
                
                
                
                82
                %Marketing
                
                
                26
                
                
                
                3
                %Total
                
                
                804
                
                
                
                100
                %





We have
not experienced any significant labor disputes and consider our relationship
with our employees to be good. Our employees are not covered by any collective
bargaining agreement.




We have
established an employee welfare plan in accordance with the relevant PRC laws
and regulations. Our total expenses for this plan was approximately $410,000 and
$190,000 in 2009 and 2008, respectively.




As we
continue to expand our business, we believe it is critical to hire and retain
top talent, especially in the areas of marketing, sales and brand management. We
believe we have the ability to attract and retain high quality talent in China
based on our competitive salaries, annual performance-based bonus system, and
equity incentive program for senior employees and
executives.


50




6.E.  Share
Ownership




As of
September 10, 2010, 12,000,000 of our ordinary shares were outstanding. Holders
of our ordinary shares are entitled to vote together as a single class on all
matters submitted to shareholders for approval. No holder of ordinary shares has
different voting rights from other any other holders of ordinary shares. We are
not aware of any arrangement that may, at a subsequent date, result in a change
of control of our company. As of September 10, 2010, no ordinary shares were
held by record holders in the United States.




Beneficial
ownership is determined in accordance with the rules and regulations of the SEC.
Percentage of beneficial ownership of each listed person is based on ordinary
shares outstanding as of September 10, 2010.




The
following table sets forth information with respect to the beneficial ownership
of our common shares as of September 10, 2010 by:




·
            each
      of our directors and executive officers;
and




·
            each
      person known to us to beneficially own more than 5% of our outstanding
      ordinary shares.




Except as
otherwise noted, the business address of each person listed in the table is 186
Pingyang Road, 6th Floor, Taiyuan City, Shanxi, 030006, People’s Republic of
China.




Shares
                    Beneficially OwnedNumber
                  
                  
                  %Directors and Executive Officers:Quanxiang
      Chen
                  
                  
                  8,100,000
                  
                  
                  
                  67.5
                  %Xiaolin
      Mao
                  
                  
                  -
                  
                  
                  
                  -Xiaoguo
      Cui
                  
                  
                  -
                  
                  
                  
                  -Yingyan
      Guo
                  
                  
                  -
                  
                  
                  
                  -


*
Indicates beneficial ownership is less than 1%.




Stock
Options




We do not
currently have a stock option plan.




ITEM
      7.
            MAJOR
      SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS




7.A.  Major
Shareholders




See Item
6.E., “Share Ownership,” for a description of our major
shareholders.




7.B.  Related
Party Transactions




Contractual
Arrangements




See
discussion above under “History and Development of the Company – Contractual
Arrangements” for a discussion about the arrangements between Mr. Chen, our
Chairman and Chief Executive Officer, his brother in-law, Mr. Dan Yu,
Taiyuan Basic Points and our subsidiary, Chongqing.


51


Issuance
of Shares to Related Parties




On April
9, 2010, Square C issued 67.5% of its equity to Mr. Chen, our chairman and the
owner of 90% of the equity of Taiyuan Basic Points. Mr. Chen received 675 shares
in our company in exchange for his shares in Square C pursuant to the terms of
the business combination.




On April
9, 2010, Square C issued 4.5% of its equity to an entity owned by Dan Yu, who is
the brother in-law of Mr. Chen and general manager of Taiyuan Basic Points,
our Chairman and Chief Executive Officer, and the owner of 10% of the equity of
Taiyuan Basic Points. Mr. Yu received 45 shares in our company in exchange for
his shares in Square C pursuant to the terms of the business
combination.




On April
9, 2010, Square C issued 4.5% of its equity to an entity owned by Yongxiang
Chen, who is the brother of Mr. Chen, our Chairman and Chief Executive
Officer.  Quanxiang Chen received 45 shares in our company in exchange
for his shares in Square C pursuant to the terms of the business
combination.




Loans
Made by a Related Party




From time
to time, we have borrowed funds from Quanxiang Chen, our chairman, pursuant to
interest-free unsecured loans, for the purpose of satisfying our working capital
needs. At December 31, 2009 and December 31, 2008, we owed approximately $5.4
million and $8.2 million, respectively, to Mr. Chen.




Management
believes the these loans were made on terms at least as favorable to us as we
could have obtained from unaffiliated parties.




Office
Lease




On August
1, 2008, we entered into a lease agreement with Quanxiang Chen, our Chairman and
Chief Executive Officer, for office space located in Taiyuan City, Shanxi
Province, with a total area of 1,656 square meters. The lease is for a ten year
term, which terminates on August 1, 2018. The monthly rent is approximately
$8,500.  We use this space as office space and our
headquarters.  Management believes the lease terms are at least as
favorable to us as we could have obtained from unaffiliated
parties.




Trademark
Licenses




We have
been granted a license to use two trademarks, both of which are registered
trademarks in the PRC.  The owner of the trademarks, Man Yu, is the
wife of Mr. Chen, our Chairman and Chief Executive Officer.  Pursuant
to the licensing agreement between Ms. Yu and Chongqing, we have the exclusive
right to these trademarks.




Guarantees




During
the years ended December 31, 2008 and 2009, each of Shanxi Zhong Yao, Shanxi Bo
Ye, Quanxiang Chen and Dan Yu, provided guarantees for certain our short term
bank loans. Shanxi Zhong Yao guaranteed loans in the aggregate amounts of $2.9
million and $1.5 million in 2009 and 2008, respectively.  Shanxi Bo
Ye, Dan Yu and Quanxiang Chen each guaranteed loans in the amounts of $1.5
million and $1.5 million in 2009 and 2008, respectively.




In 2009
and 2008, Taiyuan Basic Points, Shanxi Bo Ye and Quanxiang Chen each guaranteed
loans of Shanxi Zhong Yao in the amounts of $0.9 million and $1.0 million,
respectively.




The
purpose of these loans is to fund our working capital.  Local banks
have required guaranties pursuant to their standard regulations.  The
terms of the loans were twelve (12) months.




7.C.  Interests
of Experts and Counsel




Not
applicable.


52




ITEM
      8.
            FINANCIAL
      INFORMATION




Consolidated
Statements and Other Financial Information




The
financial statements required by this item may be found at the end of this
report on 20-F.




Legal
Proceedings




From time
to time, we may be involved in various claims and legal proceedings arising in
the ordinary course of business. We are not currently a party to any such claims
or proceedings which, if decided adversely to us, would either, individually or
in the aggregate, have a material adverse effect on our business, financial
condition, results of operations or cash flows.




Dividends




We have
never declared or paid any dividend on our ordinary shares and we do not
anticipate paying any dividends on our ordinary shares in the future. We
currently intend to retain all future earnings to finance our operations and to
expand our business.




No
Significant Changes




No
significant changes to our financial condition have occurred since the date of
the annual financial statements contained herein.




ITEM
      9.
            THE
      OFFER AND LISTING




9.A.  Offer
and Listing Details




Not
Applicable.




9.B.  Plan
of Distribution




Not
Applicable.




9.C.  Markets




Our
ordinary shares are not currently traded on any exchange.




9.D.  Selling
Shareholders




Not
Applicable.




9.E.  Dilution




Not
Applicable.




9.F.  Expenses
of the Issuer




Not
Applicable.


53




ITEM
      10.
            ADDITIONAL
      INFORMATION




10.A.  Share
Capital




Authorized/Issued
Capital




Since
September 10, 2010, on which date we amended our memorandum and articles of
association in connection with our business combination, we are authorized to
issue 100,000,000 ordinary shares, par value $0.01 per share.




Super
Champ issued 50,000 shares to its original shareholder.  These shares
were subsequently increased to 5,000,000 upon the change in the par value of our
shares from $1.00 to $0.01 on September 10, 2010.  These
5,000,000 shares were sold to the former shareholders of Square C pursuant
to the business combination.  In addition, we issued 7,000,000 new
ordinary shares on September 10, 2010 to the former shareholders of Square
C pursuant to the business combination.




Shares
Not Representing Capital




Not
Applicable.




Shares
Held By Company




Not
Applicable.




Resolutions/Authorizations/Approvals




Not
Applicable.




10.B.  Memorandum
and Articles of Association




Charter




Our
charter documents consist of our amended and restated memorandum of association
and our amended and restated articles of association, or the memorandum and
articles of association.  We may amend our memorandum and articles of
association generally by a special resolution of our shareholders.




The
following description of certain provisions of our memorandum and articles of
association does not propose to be complete and is qualified in its entirety by
our memorandum and articles of association included as Exhibit 3.1 to this
prospectus.




Corporate
Powers




Super
Champ was incorporated under the BVI Act on January 5, 2010.  Pursuant
to our memorandum of association, the objects for which we were established are
unrestricted and we have full power and authority to carry out any objects not
prohibited by the BVI Act, as the same may be revised from time to time, or any
other law of the British Virgin Islands, except that we have no power to carry
on banking or trust business, business as an insurance or reinsurance company,
insurance agent or insurance broker, the business of company management, the
business of providing the registered office or the registered agent for
companies incorporated in the British Virgin Islands, or business as a mutual
fund, mutual fund management or mutual fund administrator, unless we obtain
certain licenses under the laws of the British Virgin Islands.




54


Board
Composition




Pursuant
to our memorandum and articles of association, the business of our company is
managed by our board of directors.  Commencing with the first annual
meeting of the shareholders, directors are elected for a term of office to
expire at the next succeeding annual meeting of the shareholders after their
election.  Each director will hold office until the expiration of his
or her term of office and until his or her successor has been elected and
qualified, or until his or her earlier death, resignation or removal by the
shareholders or a resolution passed by the majority of the remaining
directors.




In the
interim between annual meetings of shareholders, or special meetings of
shareholders called for the election of directors, any vacancy on the board of
directors may be filled by the vote of a majority of the remaining directors
then in office, although less than a quorum, or by the sole remaining director.
A director elected to fill a vacancy resulting from death, resignation or
removal of a director will serve for the remainder of the full term of the
director whose death, resignation or removal will have caused such vacancy and
until his successor will have been elected and qualified.




There is
no cumulative voting by shareholders for the election of
directors.  We do not have any age-based retirement requirement and we
do not require our directors to own any number of shares to qualify as a
director.




Board
Meetings




Board
meetings may be held at the discretion of the directors at such times and in
such manner as the directors may determine upon not less than three days notice
having been given to all directors. Decisions made by the directors at meetings
shall be made by a majority of the directors.  There must be at least
a majority of the directors (with a minimum of two) at each
meeting.




Directors
Interested in a Transaction




A
director must, immediately after becoming aware of the fact that he is
interested in a transaction entered into or to be entered into by us, disclose
such interest to the board of directors.  A director who is interested
in a transaction entered into, or to be entered into, by the company, may vote
on a matter related to the transaction, attend a meeting of directors at
which a matter relating to the transaction arises and be included among the
directors present at the meeting for the purposes of a quorum and sign a
document on behalf of the company, or do any other thin in his capacity as a
director, that relates to the transaction.  A director is not required
to disclose his interest in a transaction or a proposed transaction to our board
of directors if the transaction or proposed transaction is between the director
and us, or the transaction or proposed transaction is or is to be entered
into the ordinary course of our business and on usual terms and
conditions.




The
directors may exercise all powers of our company to borrow money, mortgage or
charge our undertakings and property, issue debentures, debenture shares and
other securities whenever money is borrowed or as security for any debt,
liability or obligation of the company or of any third party.




Our
directors may, by resolution, fix the compensation of directors in respect of
services rendered or to be rendered in any capacity to us.




A
director may attend and speak at any meeting of the shareholders and at any
separate meeting of the holders of any class of our shares.




Rights
of Shares




We are
currently authorized to issue 100,000,000 ordinary shares.  The shares
are made up of one class and one series, namely ordinary shares with a par value
of $0.01 per share.  The ordinary shares have one vote each and have
the same rights with regard to dividends paid by the company and distributions
of the surplus assets of the company.




We may
purchase, redeem or acquire our shares, provided that we obtain the consent of
the member whose shares are being purchased, redeemed or otherwise
acquired.


55






Issuance
of Shares; Variation of Rights of Shares




Our
articles of association provide that directors may, without limiting or
affecting any right of holders of existing shares, offer, allot, grant options
over or otherwise dispose of our unissued shares to such persons at such times
and for such consideration and upon such terms and conditions as the directors
may determine.




Without
prejudice to any special rights previously conferred on the holders of any
existing shares or class of shares, we may issue shares, with such preferred,
deferred or other special rights or such restrictions, whether in regard to
dividend, voting or otherwise, as the directors from time to time may
determine.




If we
issue shares of more than one class, we will further amend and restate our
Memorandum and Articles of Association to reflect the rights attached to any
class (unless otherwise provided by the terms of issue of the shares of that
class) as may be varied with the consent in writing of the holders of not less
than three-fourths of the issued shares of that class and the holders of
not less than three-fourths of the issued shares of any other class of shares
which may be affected by such variation.  The rights conferred upon
the holders of the shares of any class issued with preferred or other rights
will not, unless otherwise expressly provided by the terms of issue of the
shares of that class, be deemed to be varied by the creation or issue of further
shares ranking pari passu therewith.




Shareholders Meetings




Under our
memorandum and articles of association, we are required to hold an annual
meeting of shareholders each year at such date and time determined by our
directors.  Meetings of shareholders may be called pursuant to board
resolution or the written request of shareholders holding more than 30% of the
votes of our outstanding voting shares.  Written notice of meetings of
shareholders must be given to each shareholder entitled to vote at a meeting not
fewer than 10 days prior to the date of the meeting, with certain limited
exceptions.  The written notice will state the place, time and
business to be conducted at the meeting.  The shareholders listed in
our share register on the date prior to the date the notice is given shall be
entitled to vote at the meeting, unless the notice provides a different date for
determining the shareholders who are entitled to vote.




A meeting
of shareholders held without proper notice will be valid if shareholders holding
90% majority of the total number of shares entitled to vote on all matters to be
considered at the meeting, or 90% of the votes of each class or series of shares
where shareholders are entitled to vote thereon as a class or series, together
with an absolute majority of the remaining votes, have waived notice of the
meeting and, for this purpose, presence of a shareholder at the meeting is
deemed to constitute a waiver.  The inadvertent failure of the
directors to give notice of a meeting to a shareholder, or the fact that a
shareholder has not received notice, will not invalidate a meeting.




Shareholders
may vote in person or by proxy.  No business may be transacted at any
meeting unless a quorum of shareholders is present.  A quorum consists
of the presence in person or by proxy of holders entitled to exercise at least
50% of the voting rights of the shares of each class or series of shares
entitled to vote as a class or series thereon and the same proportion of the
votes of the remaining shares entitled to vote thereon.




Changes in the Maximum Number of Shares the
Company is Authorized to Issue




Subject
to the provisions of the BVI Act, we may, by a resolution of shareholders, amend
our memorandum and articles of association to increase or decrease the number of
shares authorized to be issued.  Our directors may, by resolution,
authorize a distribution by us at a time, of an amount, and to any shareholders
they think fit if they are satisfied, on reasonable grounds, that we will,
immediately after the distribution, satisfy the solvency test as set forth in
the BVI Act, which requires that the value of a company’s assets exceeds
its liabilities, and the company is able to pay its debts as they fall
due.


56


Indemnification




Subject
to the provisions of the BVI Act, we may indemnify any person who (a) is or was
a party or is threatened to be made a party to any threatened, pending or
completed proceedings, whether civil, criminal, administrative or investigative,
by reason of the fact that the person is or was a director of our company; or
(b) is or was, at our request, serving as a director of, or in any other
capacity is or was acting for, another company or a partnership, joint venture,
trust or other enterprise, against all expenses, including legal fees, and
against all judgments, fines and amounts paid in settlement and reasonably
incurred in connection with legal, administrative or investigative
proceedings.




10.C.  Material
Contracts




Loans
and Guarantees




We enter
into loan agreements from time to time with local banks. These loans are
short-term and are used for capital during production and operation. The term of
each loan is one year. We must obtain the consent of the bank to change the
specified usage of the loans. The bank sets the interest rate at the time of the
distribution of the loan and it will not be adjusted during the term. The loans
are expected to be repaid from operating income. We are obligated to provide the
bank with financial statements during the term and we may not prepay the loan
without consent from the bank. If we engage in a contracted lease,
restructuring, joint operation, merger, acquisition, joint venture, decrease in
capital contribution or transfer of material assets, we must inform the bank. We
are limited by the bank to the amount of dividends we may pay, and we are
prohibited, unless we receive the bank’s permission, from applying for other
credit, repaying other long term debt, amending existing credit agreements or
providing debt guarantees to third parties. If we do not use the loan as
specified in the loan agreement, the bank may terminate the loan and require
payment in full. If we pay the full principal of the loan before the end of the
term, the bank may charge the interest rate agreed for the full term of the
loan.




Our loans
are guaranteed by certain related entities. See Item 7.B. – Related Party
Transactions for a description of the loan guarantees.




Lease
Agreement




We
entered into a lease agreementon August 1,
2008 with Quanxiang Chen.  The
term of lease is ten years.  The lease is for office space at a
monthly rent of approximately
$8,250.  During the term of the lease, we must obtain the
consent of Mr. Chen in order to sub-lease the rented property.  At the
conclusion of the lease we have the option, with three months written notice, to
negotiate a lease renewal.




Employment
Agreement




We have
entered into an employment agreement with Mr. Quanxiang Chen, dated October 1,
2008.  See Item
6.B – Compensation for a description of the employment
agreement.




10.D.  Exchange
Controls






British
Virgin Islands




There are
no exchange control regulations imposed on us or our shareholders under British
Virgin Islands law.




The
PRC




China regulates foreign currency
exchanges primarily through the following rules and regulations:




·
            Foreign
      Currency Administration Rules of 1996, as amended;
  and


57




·
            Administrative
      Rules of the Settlement, Sale and Payment of Foreign Exchange of
      1996.




As we
have disclosed in the risk factors above, Renminbi is not a freely convertible
currency at present. Under the current PRC regulations, conversion of Renminbi
is permitted in China for routine current-account foreign exchange transactions,
including trade and service related foreign exchange transactions, payment of
dividends and service of foreign debts. Conversion of Renminbi for most
capital-account items, such as direct investments, investments in PRC securities
markets and repatriation of investments, however, is still subject to the
approval of SAFE.




Pursuant
to the above-mentioned administrative rules, foreign-invested enterprises, such
as our PRC subsidiaries, may buy, sell and/or remit foreign currencies for
current account transactions at banks in China with authority to conduct foreign
exchange business by complying with certain procedural requirements, such as
presentment of valid commercial documents. For capital-account transactions
involving foreign direct investment, foreign debts and outbound investment in
securities and derivatives, approval from SAFE is a pre-condition. Capital
investments by foreign-invested enterprises outside China are subject to
limitations and requirements in China, such as prior approvals from the PRC
Ministry of Commerce or SAFE.




10.E.  Taxation




The
following summary of the material tax consequences of an investment in our
ordinary shares relevant to our shareholders is based upon laws and relevant
interpretations thereof in effect as of the date of this prospectus, all of
which are subject to change, possibly with retroactive effect. The discussion is
not intended to be, nor should it be construed as, legal or tax advice to any
prospective purchaser and is not exhaustive of all possible tax considerations.
This summary does not deal with all possible tax consequences relating to an
investment in our shares, such as the tax consequences under U.S. federal, state
and local tax laws or non-PRC and non-BVI tax laws. You should consult your own
tax advisors with respect to the consequences of the acquisition, ownership and
disposition of our shares.




British
Virgin Islands Taxation




All
dividends, interests, rents, royalties, compensations and other amounts paid by
us are exempt from all forms of taxation in the British Virgin Islands and any
capital gains realized with respect to any of our shares, debt obligations, or
other securities are not subject to any form of taxation in the British Virgin
Islands. No estate, inheritance, succession or gift tax, rate, duty, levy or
other charge is payable under BVI law by persons who are not persons resident in
the British Virgin Islands with respect to any of our shares, debt obligation or
other securities. There are currently no withholding taxes or exchange control
regulations in the British Virgin Islands applicable to us or our shareholders.
Currently, there is no income tax treaty, convention or reciprocal tax treaty
regarding withholdings currently in effect between the United States and the
British Virgin Islands.  We will only be liable to pay payroll tax
with respect to employees employed and working in the British Virgin
Islands.  We do not currently have, and do not intend to have in the
near future, any employees in the British Virgin Islands.




People’s
Republic of China Taxation




Under the
former Income Tax Law for Enterprises with Foreign Investment and Foreign
Enterprises, any dividends payable by foreign-invested enterprises to non-PRC
investors were exempt from PRC withholding tax. In addition, any dividends
payable, or distributions made, by us to holders or beneficial owners of our
shares would not be subject to any PRC tax, provided that such holders or
beneficial owners, including individuals and enterprises, were not deemed to be
PRC residents under the PRC tax law and were not otherwise subject to PRC
tax.




On March
16, 2007, the PRC National People’s Congress approved and promulgated a new PRC
Enterprise Income Tax Law, which took effect as of January 1, 2008. Under the
new tax law, enterprises established under the laws of non-PRC jurisdictions but
whose “de facto management body” are located in China are considered “resident
enterprises” for PRC tax purposes. Under the implementation regulations issued
by the State Council relating to the new tax law, “de facto management body” is
defined as the body that has material and overall management control over the
business, personnel, accounts and properties of an enterprise. In April 2009,
the PRC State Administration of Taxation promulgated a circular to clarify the
definition of “de facto management body” for enterprises incorporated overseas
with controlling shareholders being PRC enterprises. It remains unclear how the
tax authorities will treat an overseas enterprise invested or controlled by
another overseas enterprise and ultimately controlled by PRC individual
residents as is in our case. We are currently not treated as a PRC resident
enterprise by the relevant tax authorities. Since substantially all of our
management is currently based in China and may remain in China in the future, we
may be treated as a “resident enterprise” for the PRC tax purposes, in which
case, we will be subject to PRC income tax as to our worldwide income at a
uniform income tax rate of 25%. In addition, the new tax law provides that
dividend income between qualified “resident enterprises” is exempt from income
tax.


58




Moreover,
the new tax law provides that an income tax rate of 10% is normally applicable
to dividends payable for earnings derived since January 1, 2008 to non-PRC
investors who are “non-resident enterprises,” to the extent such dividends are
derived from sources within China. We are a British Virgin Islands holding
company and substantially all of our income is derived from dividends, if any,
we receive from our operating subsidiaries located in China. Thus, dividends
payable to us by our subsidiaries in China may be subject to the 10% withholding
tax if we are considered as a “non-resident enterprise” under the new tax
law.




Under the
currently available guidance of the new tax law, dividends payable by us to our
shareholders should not be deemed to be derived from sources within China and
therefore should not be subject to withholding tax at 10%, or a lower rate if
reduced by a tax treaty or agreement. However, what will constitute income
derived from sources within China is currently unclear. In addition, gains on
the disposition of our shares should not be subject to PRC withholding tax.
However, these conclusions are not entirely free from doubt. In addition, it is
possible that these rules may change in the future, possibly with retroactive
effect.




10.F.  Dividends
and Paying Agents




The
Company has no current plans to pay dividends. The Company does not currently
have a paying agent.




10.G.  Statement
by Experts




The
consolidated financial statements of the Company as of December 31, 2009, and
2008 and for the fiscal periods ended December 31, 2009, and 2008, included
herein, have been audited by Sherb Co., independent registered public accounting
firm, as stated in their report appearing herein, and is included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing and their consent and authorization.




10.H.  Documents
on Display




The
Company’s documents can be viewed at its headquarters, located at: 186 Pingyang
Road, 6th Floor, Taiyuan City, Shanxi, 030006, People’s Republic of China. The
Company is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and will file reports, registration statements and
other information with the SEC. The Company’s reports, registration statements
and other information can be inspected on the SEC’s website at www.sec.gov and
such information can also be inspected and copies ordered at the public
reference facilities maintained by the SEC at the following location: 100 F
Street NE, Washington, D.C.  20549.




10.I.
Subsidiary Information




Not
Applicable.




ITEM
      11.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




Quantitative
and Qualitative Disclosures about Market Risk




Financial
instruments that expose us to concentrations of credit risk primarily consist of
cash and accounts receivables. The maximum amount of loss due to credit risk in
the event of other parties failing to perform their obligations is represented
by the carrying amount of each financial asset as stated in our consolidated
balance sheets.


59




As of
December 31, 2009 and 2008, substantially all of our cash included bank deposits
in accounts maintained within the PRC where there is currently no rule or
regulation in place for obligatory insurance to cover bank deposits in the event
of bank failure. However, we have not experienced any losses in such accounts
and we believe we are not exposed to any significant risks on our cash in bank
accounts.




We are
exposed to various types of market risks, including changes in foreign exchange
rates, commodity prices and inflation in the normal course of
business.




Interest
rate risk




We are
subject to risks resulting from fluctuations in interest rates on our bank
balances. A substantial portion of our cash is held in China in interest bearing
bank deposits and denominated in RMB. To the extent that we may need to raise
debt financing in the future, upward fluctuations in interest rates would
increase the cost of new debt. We do not currently use any derivative
instruments to manage our interest rate risk.




Commodity
price risk




Certain
raw materials used by us are subject to price volatility caused by supply
conditions, political and economic variables and other unpredictable factors.
The primary purpose of our commodity price management activities is to manage
the volatility associated with purchases of commodities in the normal course of
business. We do not speculate on commodity prices.




Foreign
exchange risk




The RMB
is not a freely convertible currency. The PRC government may take actions that
could cause future exchange rates to vary significantly from current or
historical exchange rates. Fluctuations in exchange rates may adversely affect
the value of any dividends we declare.




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.




Inflation
risk




In recent
years, China has not experienced significant inflation or deflation and thus
inflation and deflation have not had a significant effect on our business during
the past three years. Inflationary factors such as increases in the cost of our
products and overhead costs may adversely affect our operating results. A high
rate of inflation in the future may have an adverse effect on our ability to
maintain current levels of gross margin and selling, general and administrative
expenses as a percentage of net revenues if the selling prices of our products
do not increase proportionately with these increased costs.




ITEM
      12.
            DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY
SECURITIES




Not
Applicable.




PART
II




ITEM
      13.
            DEFAULTS,
      DIVIDEND ARREARAGES AND
DELINQUENCIES




Not
Applicable.


60




ITEM
      14.
            MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS




Not
Applicable.




ITEM
      15.
            CONTROLS
      AND PROCEDURES




Not
Applicable.




ITEM
      16.
            RESERVED




ITEM
      16A.
            AUDIT
      COMMITTEE FINANCIAL EXPERT




Not
Applicable.




ITEM
      16B.
            CODE
      OF ETHICS




Not
Applicable.




ITEM
      16C.
            PRINCIPAL
      ACCOUNTIING FEES AND SERVICES




Not
Applicable.




ITEM
      16D.
            EXEMPTIONS
      FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES




Not
Applicable.




ITEM
      16E.
            PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
    PURCHASERS




Not
Applicable.




ITEM
      16F.
            CHANGE
      IN REGISTRANT’S CERTIFYING
ACCOUNTANT




On
September 10, 2010, our board of directors approved the engagement of Sherb
& Co. as our independent registered public accounting firm for the year
ending December 31, 2009. The board determined not to renew the engagement of Li
& Company, PC as our independent registered public accounting
firm.




The board
of directors determined to engage Sherb & Co. in order to realize economies
and efficiencies, since Sherb & Co. acted as the independent registered
public accounting firm for Taiyuan prior to the business
combination.




The
report of Li & Company, PC on the financial statements of the Company as of
February 28, 2010 did not contain an adverse opinion or disclaimer of opinion
and was not qualified or modified as to uncertainty, audit scope or accounting
principles.




In
connection with the audit of our financial statements for the period ended
February 28, 2010, there were no disagreements with Li & Company, PC on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope and procedures which, if not resolved to the satisfaction
of Li & Company, PC, would have caused Li & Company, PC to make
reference to the matter of such disagreements in their
reports.


61


We
engaged Sherb & Co. as our new independent registered public accounting firm
as of September 10, 2010. During our two most recent fiscal years neither our
company nor anyone on its behalf has consulted with Sherb & Co. regarding
either: (a) the application of accounting principles to a specified transaction,
either completed or proposed; or the type of audit opinion that might be
rendered on our financial statements, and neither a written report was provided
to us nor oral advice was provided by Sherb & Co. that was an important
factor considered by us in reaching a decision as to any accounting, auditing or
financial reporting issue; or (b) any matter that was the subject of a
disagreement, as that term is defined by SEC regulations, or a reportable event,
as that term is defined by SEC regulations.




ITEM
      16G.
            CORPORATE
      GOVERNANCE




Not
Applicable.


62


PART
III




ITEM
      17.
            FINANCIAL
      STATEMENTS




Not
applicable.




ITEM
      18.
            FINANCIAL
      STATEMENTS




The
consolidated financial statements and related notes required by this item are
contained on pages F-1 through F-33.




ITEM
      19.
            EXHIBITS




Exhibit
                  Number
              
              Description
      of Documents1.1
              
              Amended
      and Restated Memorandum of Association1.2
              
              Amended
      and Restated Articles of Association4.1
              
              Share
      Exchange Agreement by and among Super Champ Group Limited, the shareholder
      of Super Champ Group Limited, Square. C Commerce Company Ltd., and the
      shareholders of Square.  C Commerce Company Ltd., dated
      September 10, 20104.2
              
              Lease
      between Quanxiang Chen and Taiyuan Basic Points Commerce Co., Ltd., dated
      August 1, 20084.3
              
              Employment
      Contract by and between Taiyuan Basic Points Commerce Co., Ltd. and
      Quanxiang Chen, dated October 1, 20084.4
              
              Employment
      Contract by and between Taiyuan Basic Points Commerce Co., Ltd. and
      Xiaolin Mao, dated October 1, 20094.5
              
              Employment
      Contract by and between Taiyuan Basic Points Commerce Co., Ltd. and
      Xiaoguo Cui, dated October 1, 20084.6
              
              Employment
      Contract by and between Taiyuan Basic Points Commerce Co., Ltd. and
      Yingyan Guo, dated October 7, 20084.7
              
              Form
      of Goods Processing, Purchase and Sales Contract between Taiyuan Basic
      Points Commerce Co., Ltd. and Shenzhen Yuehao Jewelry Co.,
      Ltd.4.8
              
              Form
      of Purchase Contract between Taiyuan Basic Points Commerce Co., Ltd. and
      Suppliers4.9
              
              Form
      of Joint Sales Contract between Shanxi Huayu Group Ltd. and Taiyuan Basic
      Points Commerce  Co., Ltd.4.10
              
              Contract
      for Admission for Operation between Shanxi Hexin Mall Commercial
      Management Co. Ltd. and Taiyuan Basic Points Commerce Co., Ltd., dated
      January 1, 2007.4.11
              
              Lease
      Contract between Jianguo Zhang and Quanxiang Chen, dated July 15,
      2007.4.12
              
              Form
      of Joint Sales Contract between Parkson Retail Development Co., Ltd.
      Taiyuan Branch and Taiyuan Basic Points Commerce Co.,
  Ltd.4.13
              
              CC
      Registered Trademark Licensing Agreement between Man Yu and Chongqing Yu
      Zhong Commerce Co. Ltd., dated June 9, 20104.14
              
              CC
      Registered Trademark Sub-licensing Agreement between Chongqing Yu Zhong
      Commerce Co. Ltd., and Taiyuan Basic Points Commerce Co., Ltd., dated June
      9, 20104.15
              
              FENIX
      Registered Trademark Licensing Agreement between Man Yu and Chongqing Yu
      Zhong Commerce Co. Ltd., dated June 9, 20104.16
              
              FENIX
      Registered Trademark Sub-licensing Agreement between Chongqing Yu Zhong
      Commerce Co. Ltd., and Taiyuan Basic Points Commerce Co., Ltd., dated June
      9, 20104.17
              
              Exclusive
      Business Cooperation Agreement between Chongqing Yu Zhong Commerce Co.,
      Ltd. and Taiyuan Basic Points Commerce Co., Ltd. dated July 6,
      20104.18
              
              Exclusive
      Option Agreement between Chongqing Yu Zhong Commerce Co., Ltd., Quanxiang
      Chen, Dan Yu and Taiyuan Basic Points Commerce Co., Ltd. dated July 6,
      20104.19
              
              Share
      Pledge Agreement between Chongqing Yu Zhong Commerce Co., Ltd., Cheng
      Quanxiang, Dan Yu and Taiyuan Basic Points Commerce Co., Ltd. dated July
      6, 20104.20
              
              Power
      of Attorney Authorized by Quanxiang Chen to Chonqing Yu Zhong Commerce
      Co., Ltd. dated July 6, 20104.21
              
              Power
      of Attorney Authorized by Dan Yu to Chonqing Yu Zhong Commerce Co., Ltd.
      dated July 6, 20108.1
              
              Subsidiaries
      of the Registrant15.1
              
              Consent
      of Sherb & Co., LLP


63





SIGNATURES




The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this registration statementon its
behalf.




CC
      Jewelry Co., Ltd.By:
                      /s/
      Quanxiang ChenName:
      Quanxiang ChenTitle:
      Chief Executive
Officer




Date:
September 16, 2010





CC
JEWELRY CO., LTD. AND SUBSIDIARIES





CONSOLIDATED FINANCIAL
STATEMENTS INDEX





PAGE
                  
                  F-1
                  
                  REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMPAGE
                  
                  F-2
                  
                  CONSOLIDATED
      BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2008PAGE
                  
                  F-3
                  
                  CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE YEARS ENDED
      DECEMBER 31, 2009 AND 2008PAGE
                  
                  F-4
                  
                  CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2009
      AND 2008PAGE
                  
                  F-5
                  
                  CONSOLIDATED
      STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2009 AND
      2008PAGE
                  
                  F-6 –
      35
                  
                  NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2009
      AND 2008







REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the
Shareholders and Directors
 CC
Jewelry Co., Ltd. and Subsidiaries
 
 We have
audited the accompanying consolidated balance sheets of CC Jewelry Co., Ltd. and
its Subsidiaries as of December 31, 2009 and 2008 and the related consolidated
statements of operations and comprehensive income, shareholders’ equity and cash
flows for the years ended December 31, 2009 and 2008. 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 audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits 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 audits 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 purposes 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
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 audits provide 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 CC Jewelry Co., Ltd. and its
Subsidiaries as of December 31, 2009 and 2008 and the results of its operations
and its cash flows for the years ended December 31, 2009 and 2008 in conformity
with accounting principles generally accepted in the United States.
 
 
 
 
 /s/ Sherb
& Co., LLP
 Certified
Public Accountants
 New York,
New York
 September
13, 2010




F-1





CC
JEWELRY CO.,LTD. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





December 31,2009
                    
                    
                    2008ASSETSCurrent
      AssetsCash
      and cash equivalent
                    
                    $
                    1,540,673
                    
                    
                    $
                    759,785Accounts
      receivable, net
                    
                    
                    7,185,529
                    
                    
                    
                    4,328,572Notes
      receivable
                    
                    
                    838,801
                    
                    
                    
                    827,756Inventories
                    
                    
                    31,508,537
                    
                    
                    
                    25,987,230Advances
      to suppliers
                    
                    
                    540,138
                    
                    
                    
                    334,413Prepaid
      expenses
                    
                    
                    1,017,437
                    
                    
                    
                    695,416Other
      receivables
                    
                    
                    256,248
                    
                    
                    
                    260,806Due
      from employees
                    
                    
                    566,598
                    
                    
                    
                    547,991Due
      from related parties
                    
                    
                    688,333
                    
                    
                    
                    1,568,670Total
      Current Assets
                    
                    
                    44,142,294
                    
                    
                    
                    35,310,639Noncurrent
      AssetsInvestment
      in unconsolidated entity – cost method
                    
                    
                    526,531
                    
                    
                    
                    525,225Investment
      in unconsolidated entity – equity method
                    
                    
                    1,755,105
                    
                    
                    
                    1,750,752Property,
      plant and equipment, net
                    
                    
                    4,114,063
                    
                    
                    
                    3,175,079Construction
      in progress
                    
                    
                    230,463
                    
                    
                    
                    78,017Total
      Noncurrent Assets
                    
                    
                    6,626,162
                    
                    
                    
                    5,529,073TOTAL
      ASSETS
                    
                    $
                    50,768,456
                    
                    
                    $
                    40,839,712


LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      LiabilitiesShort-term
      bank loans
                    
                    $
                    8,190,487
                    
                    
                    $
                    3,933,355Accounts
      payable
                    
                    
                    4,577,868
                    
                    
                    
                    4,395,695Notes
      payable
                    
                    
                    754,855
                    
                    
                    
                    795,350Income
      taxes payable
                    
                    
                    3,625,946
                    
                    
                    
                    1,472,015Other
      payables and accrued expenses
                    
                    
                    710,608
                    
                    
                    
                    1,177,379Due
      to shareholder
                    
                    
                    5,387,303
                    
                    
                    
                    8,162,935Total
      Current Liabilities
                    
                    
                    23,247,067
                    
                    
                    
                    19,936,729Shareholders'
      EquityPaid-in
      capital
                    
                    
                    3,918,548
                    
                    
                    
                    3,552,901Statutory
      reserve
                    
                    
                    3,406,574
                    
                    
                    
                    2,472,571Retained
      earnings
                    
                    
                    19,036,160
                    
                    
                    
                    13,772,713Accumulated
      other comprehensive income
                    
                    
                    1,160,107
                    
                    
                    
                    1,104,798TOTAL
      SHAREHOLDERS' EQUITY
                    
                    
                    27,521,389
                    
                    
                    
                    20,902,983TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                    
                    $
                    50,768,456
                    
                    
                    $
                    40,839,712





See
accompanying notes to the consolidated financial statements




F-2





CC
JEWELRY CO., LTD. AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME





For the Years Ended December 31,2009
                      
                      
                      2008REVENUE
                      
                      $
                      58,920,419
                      
                      
                      $
                      59,767,770COST
      OF GOODS SOLD
                      
                      
                      41,180,014
                      
                      
                      
                      44,148,820GROSS
      PROFIT
                      
                      
                      17,740,405
                      
                      
                      
                      15,618,950Operating
      Expenses:Selling
      expenses
                      
                      
                      5,103,750
                      
                      
                      
                      5,946,222Advertising
      expense
                      
                      
                      1,216,275
                      
                      
                      
                      1,591,568General
      and administrative expenses
                      
                      
                      1,979,296
                      
                      
                      
                      2,590,548Total
      Operating Expenses
                      
                      
                      8,299,321
                      
                      
                      
                      10,128,388INCOME
      FROM OPERATIONS
                      
                      
                      9,441,084
                      
                      
                      
                      5,490,612Other
      Income Expenses:Interest
      expenses, net
                      
                      
                      (957,643
                      )
                      
                      
                      (1,051,180
                      )Other
      expenses, net
                      
                      
                      (85,970
                      )
                      
                      
                      (47,048
                      )Total
      Other Expenses
                      
                      
                      (1,043,613
                      )
                      
                      
                      (1,098,228
                      )INCOME
      BEFORE INCOME TAXES
                      
                      
                      8,397,471
                      
                      
                      
                      4,392,384INCOME
      TAXES
                      
                      
                      (2,170,785
                      )
                      
                      
                      (1,179,861
                      )NET
      INCOME
                      
                      
                      6,226,686
                      
                      
                      
                      3,212,523OTHER
      COMPREHENSIVE INCOMEForeign
      currency translation adjustments
                      
                      
                      55,309
                      
                      
                      
                      1,104,798COMPREHENSIVE
      INCOME
                      
                      $
                      6,281,995
                      
                      
                      $
                      4,317,321





See
accompanying notes to the consolidated financial statements




F-3




CC
JEWELRY CO., LTD. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





Paid-in
                      Capital
                    
                    
                    Statutory
                      Reserves
                    
                    
                    Accumulated
                      Other
                      Comprehensive
                      Income (Loss)
                    
                    
                    Retained
                      Earnings
                    
                    
                    TotalBalance,
      December 31, 2007
                    
                    $
                    3,479,953
                    
                    
                    $
                    1,990,693
                    
                    
                    $
                    (61,897
                    )
                    
                    $
                    11,280,592
                    
                    
                    $
                    16,689,341Capital
      contribution
                    
                    
                    72,948
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    72,948Net
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,212,523
                    
                    
                    
                    3,212,523Transfer
      to statutory reserves
                    
                    
                    -
                    
                    
                    
                    481,878
                    
                    
                    
                    -
                    
                    
                    
                    (481,878
                    )
                    
                    
                    -Dividend
      distribution
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (238,524
                    )
                    
                    
                    (238,524
                    )Foreign
      currency translation adjustment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,166,695
                    
                    
                    
                    -
                    
                    
                    
                    1,166,695Balance,
      December 31, 2008
                    
                    
                    3,552,901
                    
                    
                    
                    2,472,571
                    
                    
                    
                    1,104,798
                    
                    
                    
                    13,772,713
                    
                    
                    
                    20,902,983Capital
      contribution
                    
                    
                    365,647
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    365,647Net
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    6,226,686
                    
                    
                    
                    6,226,686Transfer
      to statutory reserves
                    
                    
                    -
                    
                    
                    
                    934,003
                    
                    
                    
                    -
                    
                    
                    
                    (934,003
                    )
                    
                    
                    -Dividend
      distribution
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (29,236
                    )
                    
                    
                    (29,236
                    )Foreign
      currency translation adjustment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    55,309
                    
                    
                    
                    -
                    
                    
                    
                    55,309Balance,
      December 31, 2009
                    
                    $
                    3,918,548
                    
                    
                    $
                    3,406,574
                    
                    
                    $
                    1,160,107
                    
                    
                    $
                    19,036,160
                    
                    
                    $
                    27,521,389





See
accompanying notes to the consolidated financial statements




F-4





CC
JEWELRY CO., LTD. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS





For the Years Ended December 31,2009
                  
                  
                  2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                  
                  $
                  6,226,686
                  
                  
                  $
                  3,212,523Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
                  
                  
                  1,174,253
                  
                  
                  
                  1,467,333Retirement
      of property, plant and equipment
                  
                  
                  151,794
                  
                  
                  
                  749,369Provision
      for bad debts
                  
                  
                  13,625
                  
                  
                  
                  716,144Changes
      in operating assets and liabilities:(Increase)
      Decrease in assets:Accounts
      receivable
                  
                  
                  (2,870,582
                  )
                  
                  
                  1,963,683Inventories
                  
                  
                  (5,521,307
                  )
                  
                  
                  (10,980,236
                  )Advances
      to suppliers
                  
                  
                  (205,725
                  )
                  
                  
                  345,531Prepaid
      expenses
                  
                  
                  (322,021
                  )
                  
                  
                  (130,245
                  )Other
      receivables
                  
                  
                  4,558
                  
                  
                  
                  (18,917
                  )Due
      from employees
                  
                  
                  (18,607
                  )
                  
                  
                  (293,962
                  )Due
      from related parties
                  
                  
                  880,337
                  
                  
                  
                  (180,039
                  )Increase
      (Decrease) in liabilities:Accounts
      payable
                  
                  
                  182,173
                  
                  
                  
                  2,085,952Income
      taxes payable
                  
                  
                  2,153,931
                  
                  
                  
                  1,201,241Other
      payables and accrued expenses
                  
                  
                  (466,771
                  )
                  
                  
                  10,153Due
      to shareholder
                  
                  
                  (2,775,632
                  )
                  
                  
                  1,673,344Net
      cash provided by operating activities
                  
                  
                  1,393,288
                  
                  
                  
                  1,821,874CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property, plant and equipment
                  
                  
                  (257,342
                  )
                  
                  
                  (1,224,883
                  )Proceeds
      from disposal of property, plant and equipment
                  
                  
                  -
                  
                  
                  
                  177,873Payment
      for construction in progress
                  
                  
                  (2,185,693
                  )
                  
                  
                  (1,831,044
                  )Increase
      in notes receivable
                  
                  
                  (76,325
                  )
                  
                  
                  (242,083
                  )Collection
      of notes receivable
                  
                  
                  65,280
                  
                  
                  
                  145,896Increase
      in long-term equity investments
                  
                  
                  -
                  
                  
                  
                  (416,555
                  )Net
      cash used in investing activities
                  
                  
                  (2,454,080
                  )
                  
                  
                  (3,390,796
                  )


CASH
      FLOWS FROM FINANCING ACTIVITIES:Capital
      contribution
                  
                  
                  365,647
                  
                  
                  
                  72,948Proceeds
      from short-term bank loans
                  
                  
                  8,565,914
                  
                  
                  
                  4,175,541Repayment
      of short-term bank loans
                  
                  
                  (4,308,782
                  )
                  
                  
                  (3,851,653
                  )Proceeds
      from notes payable
                  
                  
                  15,661,400
                  
                  
                  
                  18,302,833Repayment
      of notes payable
                  
                  
                  (15,618,927
                  )
                  
                  
                  (17,672,681
                  )Cash
      dividend paid to shareholder
                  
                  
                  (29,236
                  )
                  
                  
                  (238,524
                  )Net
      cash provided by financing activities
                  
                  
                  4,636,016
                  
                  
                  
                  788,464NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                  
                  
                  788,648
                  
                  
                  
                  (780,458
                  )Effect
      of exchange rate changes on cash
                  
                  
                  (7,760
                  )
                  
                  
                  756,418Cash
      and cash equivalents at beginning of year
                  
                  
                  759,785
                  
                  
                  
                  783,825CASH
      AND CASH EQUIVALENTS AT END OF YEAR
                  
                  $
                  1,540,673
                  
                  
                  $
                  759,785SUPPLEMENTARY
      CASH FLOW INFORMATIONCash
      paid during the year:Income
      taxes paid
                  
                  $
                  21,699
                  
                  
                  $
                  15,148Interest
      paid
                  
                  $
                  686,772
                  
                  
                  $
                  793,714Non-cash
      transactions:Transfer
      from construction in progress to property, plant and
    equipment
                  
                  $
                  2,033,247
                  
                  
                  $
                  1,753,027Appropriation
      of statutory reserve
                  
                  $
                  934,003
                  
                  
                  $
                  481,878





See
accompanying notes to the consolidated financial statements




F-5




CC JEWELRY CO., LTD.
AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





NOTE
1 – ORGANIZATION AND PRINCIPAL ACTIVITIES





Super
Champ Group Limited, or Super Champ, is a British Virgin Islands limited
liability company organized on January 5, 2010 under the BVI Business Companies
Act, 2004 (the “BVI Act”).  Super Champ was a blank check company
formed for the purpose of acquiring, through a share exchange, asset acquisition
or other similar business combination, an operating business.




Business
Combination




On
September 10, 2010, Super Champ and its sole shareholder entered into a
share exchange agreement with Square. C Commerce Company Ltd., or Square C,
a British Virgin Islands limited liability company organized on April 9, 2010
under the BVI Act, and the shareholders of Square C.  Pursuant to the
share exchange agreement, Super Champ acquired from the shareholders of Square C
all of the issued and outstanding shares of Square C, in exchange for an
aggregate of 7,000,000 newly issued ordinary shares issued by Super Champ
to the shareholders of Square C.  In addition, the sole shareholder of
Super Champ sold all of the 5,000,000 ordinary shares of Super Champ that were
issued and outstanding prior to the business combination, to the shareholders of
Square C for cash, at a price of $0.03 per share.  As a result, the
individuals and entities that owned shares of Square C prior to
the business combination acquired 100% of the equity of Super Champ, and
Super Champ acquired 100% of the equity of Square C.  Square C is now
a wholly owned subsidiary of Super Champ.  In conjunction with the
business combination, Super Champ filed an amended charter, pursuant to which
Super Champ changed its name to CC Jewelry Co., Ltd., or CC Jewelry, changed its
fiscal year end to December 31st, changed
the par value of its ordinary shares to $0.01 per share and increased its
authorized shares to 100,000,000.  Upon the consummation of the
business combination, Super Champ ceased to be a shell company.  CC
Jewelry, together with its subsidiaries, is referred to as the “Company,” unless
specific reference is made to a company or entity.  The Company is a
supplier and retailer of fine jewelry in the People’s Republic of China, or the
PRC.


The
Company’s Shareholders




Mr.
Quanxiang Chen, CC Jewelry’s Chairman and Chief Executive Officer, owns 100% of
the equity in Jin Fan Commerce Company Limited, a British Virgin Island company,
which owned 67.5% of the equity of Square C prior to the business combination,
and owns 67.5% of the Company’s equity since the business combination. Dan Yu,
the brother in-law of Mr. Chen, owns 100% of the equity in Sail Start Commerce
Company Limited, a British Virgin Islands company, which owned 4.5% of the
equity of Square C prior to the business combination and owns 4.5% of the
Company’s equity since the business combination.  Yongxiang Chen, the
brother of the Company’s chairman, owns 100% of the equity in Zong Fan Commerce
Company Limited, a British Virgin Islands company, which owned 4.5% of the
equity of Square C prior to the business combination and owns 4.5% of the
Company’s equity since the business combination.




The
holders of the remaining 23.5% of the Company’s shares are investors that are
residents of the PRC and are unaffiliated with CC Jewelry Co.,
Ltd.


F-6





CC JEWELRY CO., LTD.
AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


NOTE
1 – ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)





Organization:





The
Company’s
Subsidiaries




Offshore
Holding Company Subsidiaries




Square C,
the Company’s wholly owned subsidiary, was incorporated on April 9, 2010 under
the laws of the British Virgin Islands.  CC Jewelry acquired all of
the capital stock of Square C pursuant to the business combination on
September 10, 2010.  On June 25, 2010, Square C acquired all of
the outstanding equity of Massfit Corporation Ltd., or Massfit, a limited
liability company formed on March 17, 2010 under the laws of Hong
Kong.  On June 9, 2010, Massfit established a wholly owned subsidiary,
Chongqing Yu Zhong Commerce Co., Ltd., or Chongqing, a wholly foreign owned
enterprise, or WOFE, formed under the laws of the PRC.  Square C,
Massfit and Chongqing are holding companies.  As a result of these
transactions, each of Square C, Massfit and Chongqing is a wholly owned
subsidiary of CC Jewelry.  Pursuant
to the consummation of the business combination, the owners of Square C received
shares in CC Jewelry in proportion to their interests in Square C prior to the
business combination.




PRC
Operating Companies




Taiyuan
Basic Points Commerce Co., Ltd, or Taiyuan BPCC, is a PRC company formed on
February 28, 2002.  Mr. Chen and Mr. Yu together own 100% of Taiyuan
Basic Points, which operates all of CC Jewelry’s business operations in the PRC
through its branches and subsidiaries.  Mr. Chen owns 90% of Taiyuan
Basic Points and Mr. Yu owns 10%. Mr. Chen and Mr. Yu own 90% and 10%,
respectively, of Taiyuan BPCC.


The
following table provides a description of each of the subsidiaries of Taiyuan
BPCC:




Name of Subsidiary
                    
                    Operating activitiesShanxi
      Zhong Yao Commerce Co., Ltd.(“Shanxi
      Zhongyao”)
                    
                    Operating
      Chow Tai Fok brand and managing Chow Tai Fok counters and
      storesShanxi
      Bo Ye Commerce Co., Ltd.(“Shanxi
      Boye”)
                    
                    Operating
      FENIX brand and managing FENIX counters and storesLinfen
      Jimei Jewelry Co., Ltd. (“Linfen Jimei”)
                    
                    Operating
      and managing CC counter in LinfenYangquan
      Daoming Commerce Co., Ltd. (“Yangquan Daoming”)
                    
                    Operating
      and managing CC counter in YangquanShanghai
      Zhong Yao Commerce Co., Ltd. (“Shanghai Zhongyao)
                    
                    Operating
      FENIX brand and managing FENIX counters and
  stores


F-7





CC JEWELRY CO., LTD.
AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008


NOTE
1 – ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)




The
Company’s subsidiary, Chongqing, manages and operates the Company’s fine jewelry
business through Taiyuan BPCC. Chongqing operates Taiyuan BPCC pursuant to
contractual arrangements with Taiyuan BPCC and Messrs. Chen and Yu, the 100%
shareholders of Taiyuan BPCC. On July 6, 2010 Taiyuan BPCC entered into an
Exclusive Business Cooperation Agreement with Chongqing which essentially
entrusts the management of Chongqing with the operation of Taiyuan BPCC. As a
result of this agreement, Chongqing is also entitled to receive the residual
return of Taiyuan BPCC. In addition, Chongqing will absorb 100% of the expected
losses and gains of Taiyuan BPCC, which results in Chongqing being the primary
beneficiary of Taiyuan BPCC. The agreement is in effect for thirty years from
that date of agreement, with both Taiyuan BPCC and Chongqing reviewing the
agreement every three months to determine to amend or supplement the provisions
of the agreement based on circumstances at that time.
  In
addition, on July 6, 2010, the shareholders of Taiyuan BPCC, along with
Chongqing and Taiyuan BPCC, entered into an Exclusive Option Agreement, whereby
the shareholders of Taiyuan BPCC granted Chongqing the exclusive option to
purchase their total equity interest in Taiyuan BPCC. Such price is to be
designated by Chongqing, unless appraisal is required under PRC law. The
agreement is for the purchase of all equity in Taiyuan BPCC and its assets. The
agreement is effective for thirty years and is renewable at the option of
Chongqing.
  In
addition, on July 6, 2010 the shareholders of Taiyuan BPCC, along with Taiyuan
BPCC, entered into a Share Pledge Agreement with Chongqing. The agreement was
entered into to ensure that the Taiyuan BPCC’s shareholders perform their
obligations under the agreement. Accordingly, all shares of Taiyuan BPCC have
been pledged to Chongqing, in order to ensure performance under the agreement.
  Based on
these agreements, or collectively the VIE agreements, the Company has determined
that Taiyuan BPCC is a variable interest entity (“VIE”), and accordingly
consolidates the results of Taiyuan BPCC as required by generally accepted
accounting principles in the United States (“US GAAP”), because the Company is
the primary beneficiary of the VIE.
  Chinese
laws and regulations currently do not prohibit or restrict foreign ownership in
jewelry businesses. However, Chinese laws and regulations do prevent direct
foreign investment in certain industries. The aforementioned VIE agreements were
entered into to protect the Company’s shareholders from possible future foreign
ownership restrictions. The entrusted management agreements with Taiyuan BPCC,
provides Chongqing that Taiyuan PBCC will guarantee the performance of VIE
agreements. Chongqing will be entitled to receive the residual return of Taiyuan
BPCC. As a result of the agreement, Chongqing will absorb 100% of the expected
losses and gains of Taiyuan BPCC, which results in Chongqing being the primary
beneficiary of Taiyuan BPCC.
 
 The
accompanying financial statements are essentially the operations of Taiyuan PBCC
for the years ended December 31, 2009 and 2008, reporting as CC Jewelry as if
the share exchange and VIE agreements were in effect for all periods presented.
The shareholders’ equity reflects the equity of the Company prior to the share
exchange and VIE agreements.


Principle
Activities:





The
Company is a leading jewelry brand which designs and retails fine jewelry in
China, with headquarters in Taiyuan City, Shanxi Province, PRC.  The
Company’s three fine jewelry brands are CC, FENIX and Chow Tai
Fook.  The Company operated an aggregate of forty seven fine jewelry
stores and counter, which are also referred to, collectively, as boutiques,
located in several major cities in the PRC.




C.Comeliness





The
Company began selling C.Comeliness, or CC products in Shanxi Province in 2000
and registered CC trademark in 2003. The Company’s twenty one C.Comeliness, or
CC boutiques, located in department stores and malls in major cities in the PRC,
including Xi’an in Shanxi Province and Wuhan in Hubei Province, carry a large
selection of CC brand name fine jewelry that the Company designs. The Company’s
CC jewelry is sold exclusively in its boutiques.  The Company’s CC
product offering includes rings, wedding bands, necklaces, bracelets, brooches
and pendants made from platinum, gold, diamond and precious
stones.  The Company markets its CC jewelry as a middle-class to
high-end fine jewelry brand.




FENIX





In order
to attract high income consumers, the Company created the FENIX brand in 2003
and registered the FENIX trademark in 2004.  The Company’s seventeen
FENIX boutiques, which are located in high-end department stores and malls in
major cities in the PRC, including Shanghai, carry a large selection of FENIX
brand name luxury jewelry that the Company designs.  The Company’s
FENIX jewelry is sold exclusively in its boutiques. The Company’s FENIX
product offering includes rings, wedding bands, necklaces, bracelets, brooches
and pendants made from diamonds and jade.  The geographic breakdown of
the Company’s FENIX boutiques within the PRC is as follow: six boutiques in
northern China, two in the northeast, four in the northwest, two in eastern
China and three in the southwest.


F-8




CC JEWELRY CO., LTD.
AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





NOTE
1 – ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)





Chow
Tai Fook





The
Company began operating as a non-exclusive distributor for Chow Tai Fook in
Shanxi Province in 2004. The Company’s nine Chow Tai Fook boutiques, which are
located in department stores and malls in major cities in the PRC, including
Taiyuan, carry a large selection of fine jewelry designed by Chow Tai
Fook.  Chow Tai Fook Jewelry (Shenzhen) Co., Ltd., a fine jewelry
retailer owned by Chow Tai Fook Enterprises, has retail outlets in several
countries, including over 150 retail outlets in mainland China.  The
Company is a non-exclusive distributor of Chow Tai Fook
products.  Pursuant to its arrangement with Chow Tai Fook, the Company
is authorized to sell its products in boutiques located in Shanxi Province in
northern China, which is where all nine of the Company’s Chow Tai Fook boutiques
are located. The Company’s Chow Tai Fook product offering includes rings,
wedding bands, necklaces, bracelets, brooches and pendants made from platinum,
gold, diamond and precious stones.





Other
Products





The
Company operates two Calvin Klein boutiques, which are located in department
stores in the southwestern region of the PRC.  These boutiques carry a
large selection of Calvin Klein designer clothing.  Revenue generated
by these boutiques accounted for approximately 3% of the Company’s total revenue
in 2009.  Until July 2009, the Company operated one counter for Luk
Fook Jewelry and one counter for Emperor Jewelry, each of which is an
independent jewelry Company located in the PRC.  In July 2009, the
Company terminated its arrangement with Emperor and in July 2010 the Company
terminated its arrangement with Luk Fook in order to focus the Company’s
resources on sales of its primary products.





The
Company mainly operates boutiques in department stores.  The Company
has operational agreements with department stores in various cities as mentioned
above with a major concentration in northwest China.  Major department
stores include Shanxi Huayu, Jincheng Fengzhan, Taiyuan Baisheng, Taiyuan
Wangfujing, Taiyuan Maoye, Datong Hualin, Shuozhou Meilian and
etc.  Sales within departments store boutiques in China represent 79%
and 80% of net sales for the years ended December 31, 2009 and
2008.  Sales transacted at these retail locations are recognized at
the “point of sale”.  The department store operator (i) provides and
maintains boutique facilities; (ii) assumes retail credit and certain other
risks; (iii) acts for the Company in the sale of merchandise; and (iv) in
certain limited circumstances, provides retail staff and bears the risk of
inventory loss.  The Company (i) owns and manages the merchandise;
(ii) establishes retail prices; and (iii) has merchandising, marketing and
display responsibilities.  The Company pays the department stores a
percentage fee based on sales generated in these locations.  Fees paid
to department stores for services and use of facilities totaled $318,381 and
$287,682 in the years ended December 31, 2009 and 2008 and are included in
selling expenses.


F-9


CC JEWELRY CO., LTD.
AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Basis
of Consolidation





The
consolidated financial statements include the accounts of Square C Commerce
Company Ltd. and its wholly owned subsidiaries Massfit, Chongqing, Taiyuan BPCC,
Shanxi Boye, Shanxi Zhongyao, Shanghai Zhongyao, Yangquan Daoming, Zhangzhi
Kamei and Linfen Jimei.  Intercompany accounts and transactions have
been eliminated upon consolidation.




ASC 810
requires a VIE entity, or Taiyuan BPCC, to be consolidated by a company if that
company is subject to a majority of the risk of loss for the variable interest
entity or is entitled to receive a majority of the variable interest entity’s
residual returns. Variable interest entities are those entities in which the
Company, through contractual arrangements, bears the risks of, and enjoys the
rewards normally associated with, ownership of the entities, and therefore the
Company is the primary beneficiary of these entities.


Use
of Estimates





The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America which
require 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 consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
periods.  Management makes these estimates using the best information
available at the time the estimates are made.  Actual results could differ
from those estimates.





Foreign
Currency Translation





The
accompanying consolidated financial statements are presented in United States
dollars (“US$” or “$”), while the functional currency of the Company is Renminbi
(“RMB”), as determined based on the criteria of Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) ASC 830 “Foreign
Currency Matters”. The consolidated financial statements are translated
into United States dollars from RMB at year-end exchange rates as to assets and
liabilities and average exchange rates as to revenues and expenses.
 Capital accounts are translated at their historical exchange rates when
the capital transactions occurred.  The resulting transaction
adjustments are recorded as a component of other comprehensive income with in
shareholders’ equity.  Gains and losses from foreign currency
transactions are included in net income.





2009
                  
                  
                  2008Year
      ended RMB: US$ exchange rate
                  
                  
                  6.8372
                  
                  
                  
                  6.8542Average
      yearly RMB: US$ exchange rate
                  
                  
                  6.8409
                  
                  
                  
                  6.9622





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


F-10


CC JEWELRY CO., LTD.
AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Revenue
Recognition





Wholesale
revenues are recognized upon delivery and acceptance of merchandise by the
customers while retail revenues are recognized at the “point of sale”, which
occurs when merchandise is taken in an “over-the-counter” transaction, provided
that all of the following criteria are met:





l
            Persuasive
      evidence of an arrangement exists,


l
            Delivery
      has occurred or services have been
rendered,


l
            The
      seller’s price to the buyer is fixed or determinable,
  and


l
            Collectability
      is reasonable assured.





Cost
of Sales





Cost of
sales includes cost of raw materials and processing fees.





Selling
Expenses





Selling
and marketing expenses include store operating expenses such as labor, rent,
depreciation and utilities, advertising, travel and entertainment, amortization
of cost for insurance expenses, amortization of cost for franchise fees, and
business taxes.





General
and Administrative (“G&A”) Expenses





General
and administrative expenses include management and office salaries and employee
benefits, deprecation for office facility and office equipment, travel and
entertainment, rent, legal and accounting, consulting fees, workers’
compensation insurance, and other office expenses.





Advertising
Expense





Advertising
expense is generally expensed when the advertisement is utilized.  The
Company incurred $1,216,275 and $1,591,568 advertising expense for the years
ended December 31, 2009 and 2008, respectively.





F-11


CC JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Income
Taxes





Deferred
tax assets and liabilities are recognized for the future tax consequence
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to be
applied to taxable income in the years in which those temporary differences are
expected to reverse.  The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the statement of income in
the period that includes the enactment date.  A valuation allowance is
provided for deferred tax assets if it is more likely than not these items will
either expire before the Company is able to realize their benefits, or that
future deductibility is uncertain.





Value-Added
Tax (“VAT”)





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





Comprehensive
Income





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





Cash
and Cash Equivalents





For
financial reporting purposes, the Company considers all highly liquid
investments purchased with original maturity of three months or less to be cash
equivalents.  The Company maintains no bank account in the United States of
America.  The Company maintains its bank accounts in
China.  Balances at financial institutions or state-owned banks within
the PRC are not covered by insurance.  The Company has not experienced
any losses in such accounts and believes it is not exposed to any significant
risks on its cash in bank accounts.


F-12


CC JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Fair
Value of Financial Instruments





FASB ASC
820 (formerly Statement of Financial Accounting Standard (“SFAS”) No. 157 Fair
Value Measurements) establishes a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value. The hierarchy prioritizes
the inputs into three levels based on the extent to which inputs used in
measuring fair value are observable in the market





These
tiers include:





•
            Level
      1—defined as observable inputs such as quoted prices in active
      markets;





•
            Level
      2—defined as inputs other than quoted prices in active markets that are
      either directly or indirectly observable;
  and





•
            Level
      3—defined as unobservable inputs in which little or no market data exists,
      therefore requiring an entity to develop its own
      assumptions.





The
carrying amounts of financial assets and liabilities, such as cash and cash
equivalents, accounts receivable, notes receivable, other receivables,
short-term bank loans, accounts payable, notes payable, other payables and
accrued expenses and due to related parties, approximate their fair values
because of the short maturity of these instruments.





Accounts
Receivable





Accounts
receivable are carried at net realizable value.  An allowance for
doubtful accounts is recorded in the period when loss is probable based on an
assessment of specific evidence indicating troubled collection, historical
experience, accounts aging and other factors.  Accounts are written
off after exhaustive efforts at collection.  If accounts receivable
are to be provided for, or written off, they would be recognized in the
consolidated statement of operations within operating
expense.  Balance of allowance of doubtful accounts was $729,769 and
$716,144 at December 31, 2009 and 2008, respectively.





Inventories





Inventories
are stated at the lower of cost or net realizable value, which is based on
estimated selling prices less any further costs expected to be incurred for
completion and disposal.  Specific identification method is used for
diamond, gemstones and other precious metals
product.  Weighted-average method is used for prime gold
products.  At December 31, 2009 and 2008, the Company has no reserve
for inventories.


F-13


CC JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Advances
to Suppliers





Prepayments
for goods represent cash paid in advance to suppliers for purchases of raw
materials or equipment.  The balance of advances to suppliers was
$540,138 and $334,413 at December 31, 2009 and 2008, respectively.





Prepaid
Expenses





Prepaid
expenses mainly relate to the prepaid franchise expenses, rental expenses,
management fees, property insurance and advertising cost to department stores,
insurance companies and advertising companies.  The prepayment is
expensed over the contract period.





Property,
Plant, and Equipment





Property,
plant and equipment are stated at cost less accumulated depreciation, and
include expenditure that substantially increases the useful lives of existing
assets.





Depreciation
is provided over their estimated useful lives, using the straight-line
method.  Estimated useful lives are as follows:





Leasehold
      improvements
            3~5
      yearsFurniture
      and office equipment
            2~3
      yearsMachinery
      and equipment
            2~3
      yearsMotor
      vehicles
            5
      years





Leasehold
improvements are amortized over the shorter of their estimated useful lives or
the related lease terms. When assets are sold or retired, their costs and
accumulated depreciation are eliminated from the consolidated financial
statements and any gain or loss resulting from their disposal is recognized in
the period of disposition as an element of other income.  The cost of
maintenance and repairs is charged to statement of operations as incurred,
whereas significant renewals and betterments are capitalized.





The
Company reviews the carrying value of property, plant and equipment for
impairment whenever events and circumstances indicate that the carrying value of
an asset may not be recoverable from the estimated future cash flows expected to
result from its use and eventual disposition.  In cases where
undiscounted expected future cash flows are less than the carrying value, an
impairment loss is recognized equal to an amount by which the carrying value
exceeds the fair value of assets.  The factors considered by
management in performing these assessments include current operating results,
trends and prospects, the manner in which the property is used, and the effects
of obsolescence, demand, competition, and other economic
factors.  Based on these assessments there was no impairment at
December 31, 2009 and 2008.


F-14


CC JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Construction
in Progress





Construction
in progress represents direct costs of construction or acquisition, interest and
design fees incurred. No interest was capitalized for the years ended December
31, 2009 and 2008.  Capitalization of these costs ceases and the
construction in progress is transferred to property, plant and equipment when
substantially all the activities necessary to prepare the assets for their
intended use are completed.  No depreciation is provided until it is
completed and ready for intended use.  Construction in progress as of
December 31, 2009 and 2008 was $230,463 and $78,017, respectively.





Impairment
of Long-Lived Assets





Long-lived
assets of the Company are reviewed annually as to whether their carrying value
has become impaired, pursuant to the guidelines established in FASB ASC 360
(formerly SFAS No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assets).  The Company considers assets
to be impaired if the carrying value exceeds the future projected cash flows
from the related operations.  The Company also re-evaluates the
periods of amortization to determine whether subsequent events and circumstances
warrant revised estimates of useful lives.  There were no impairments
for the years ended December 31, 2009 and 2008.





Investments





The
Company applies FASB ASC 323 “Investments - Equity Method and Joint Ventures” in
accounting for its equity investments.  Under FASB ASC 323 equity
method is used for investments in entities in which the Company has the ability
to exercise significant influence but does not own a majority equity interest or
otherwise control.  The cost method is used for investments over which
the Company does not have the ability to exercise significant influence or
control.





For
investments in an investee over which the Company does not have significant
influence, the Company carries the investment at cost and only adjusts for
other-than-temporary declines in fair value and distributions of earnings.
 The management regularly evaluates the impairment of the cost method
investment based on performance and the financial position of the investee as
well as other evidence of market value.  Such evaluation includes, but is
not limited to, reviewing the investee’s cash position, recent financings,
projected and historical financial performance, cash flow forecasts and
financing needs.  An impairment loss is recognized in earnings equal to the
difference between the investment’s cost and its fair value at the balance sheet
date of the reporting period for which the assessment is made. The fair value of
the investment would then become the new cost basis of the investment.  The
Company did not incur impairment losses relating to investment – cost
method during the years ended December 31, 2008 and 2009.


F-15


CC JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Related
Party





In
general, related parties exist when there is a relationship that offers the
potential for transactions at less than arm’s-length, favorable treatment, or
the ability to influence the outcome of events different from that which might
result in the absence of that relationship.  A related party may be
any of the followings: a) affiliate, a party that directly or indirectly
controls, is controlled by, or is under common control with another party; b)
principle owner, the owner of record or known beneficial owner of more than 10%
of the voting interest of an entity; c) management, persons having
responsibility for achieving objectives of the entity and requisite authority to
make decision; d) immediate family of management or principal owners; e) a
parent company and its subsidiaries; d) other parties that has ability to
significant influence the management or operating policies of the
entity.  This item is discussed in further detail in Note 9 – Related
Party Transactions.





Economic
and Political Risks





The
Company’s operations are conducted in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state
of the PRC economy.





The
Company’s operations in the PRC are subject to special considerations and
significant risks not typically associated with companies in North America and
Western Europe.  These include risks associated with, among others, the
political, economic and legal environment and foreign currency exchange. 
The Company’s results may be adversely affected by changes in the political and
social conditions in the PRC, and by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency
conversion, remittances abroad, and rates and methods of taxation, among other
things.


F-16


CC JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Recently
Issued Accounting Pronouncements





In June
2009, the Company adopted Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 105-10 (formerly Statement of
Financial Accounting Standards (“SFAS”) No. 168, the FASB ASC and Hierarchy of
Generally Accepted Accounting Principles, a replacement of FASB Statement No.
162).  ASC 105-10 establishes the FASB ASC as the source of
authoritative accounting principles recognized by the FASB to be applied in
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America.  The adoption
of this standard has no impact on the Company’s consolidated financial
statements.  However, reference to specific accounting standards have
been changed to refer to appropriate section of the ASC.  Subsequent
revisions to GAAP by the FASB will be incorporated into ASC through issuance of
Accounting Standards Updates (“ASU”).





Effective
January 1, 2009, the Company adopted ASC 805 (formerly SFAS No. 141 R,
Business Combinations).  ASC 805 requires an acquirer to measure the
identifiable assets acquired, the liabilities assumed, and any non-controlling
interest in the acquiree at their fair values on the acquisition date, with
goodwill being the excess value over the net identifiable assets acquired.
 The adoption of ASC 805 did not have any effect on the Company’s
consolidated financial statements.





Effective
January 1, 2009, the Company adopted ASC 810-10 (formerly SFAS No. 160,
Non-controlling Interests in Consolidated Financial Statements).  This
Statement establishes accounting and reporting standards that require the
ownership interests in subsidiaries’ non-parent owners be clearly presented in
the equity section of the balance sheet; requires the amount of consolidated net
income attributable to the parent and to the non-controlling interest be clearly
identified and presented on the face of the consolidated statement of income;
requires that changes in a parent’s ownership interest while the parent retains
its controlling financial interest in its subsidiary be accounted for
consistently; requires that when a subsidiary is deconsolidated, any retained
non-controlling equity investment in the former subsidiary be initially measured
at fair value and the gain or loss on the deconsolidation of the subsidiary be
measured using the fair value of any non-controlling equity; requires that
entities provide disclosures that clearly identify the interests of the parent
and the interests of the non-controlling owners.  The adoption of ASC
810-10 did not have a significant effect on the Company’s consolidated financial
statements.





On
April 1, 2009, the FASB approved ASC 805 (formerly FSP FAS 141R-1,
Accounting for Assets Acquired and Liabilities Assumed in a Business Combination
That Arise from Contingencies), which amends Statement 141R and eliminates the
distinction between contractual and non-contractual contingencies.  Under
ASC 805, an acquirer is required to recognize at fair value an asset acquired or
liability assumed in a business combination that arises from a contingency if
the acquisition-date fair value of that asset or liability can be determined
during the measurement period. If the acquisition-date fair value cannot be
determined, the acquirer applies the recognition criteria in SFAS No. 5,
Accounting for Contingencies and Interpretation 14, “Reasonable Estimation of
the amount of a Loss – and interpretation of FASB Statement No. 5,” to
determine whether the contingency should be recognized as of
the acquisition date or after it.  The adoption of ASC 805 did not
have a material effect on the Company’s consolidated financial
statements.


F-17


CC JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





ASC
320-10 (formerly FSP FAS 115-2 and FAS 124-2) amends the other-than-temporary
impairment guidance in U.S. GAAP for debt securities to make the guidance more
operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements.  It did not amend existing recognition and measurement guidance
related to other-than-temporary impairments of equity securities. We are
required to adopt ASC 320-10 for our interim and annual reporting periods ending
after June 15, 2009.  ASC 320-10 does not require disclosures for
periods presented for comparative purposes at initial adoption.  ASC 320-10
requires comparative disclosures only for periods ending after initial adoption.
 The adoption of ASC 320-10 did not have a material effect on the Company’s
consolidated financial statements.





On
April 9, 2009, the FASB also approved ASC 825-10 (formerly FSP FAS 107-1
and APB 28-1,Interim
Disclosures about Fair Value of Financial Instruments )to require disclosures
about fair value of financial instruments in interim period financial statements
of publicly traded companies and in summarized financial information required by
APB Opinion No. 28,Interim Financial Reporting.  We are required to adopt ASC 825-10
for our interim and annual reporting periods ending after June 15, 2009.
 ASC 825-10 does not require disclosures for periods presented for
comparative purposes at initial adoption. ASC 825-10 requires comparative
disclosures only for periods ending after initial adoption.  The adoption
of ASC 825-10 did not have a material effect on the Company’s consolidated
financial statements.





In April
2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly” as incorporated into FASB ASC
820, “Fair Value Measurements and Disclosures”. The guidance relates to
determining fair values when there is no active market or where the price inputs
being used represent distressed sales.  It reaffirms what FASB ASC 820
states is the objective of fair value measurement—to reflect how much an asset
would be sold for in an orderly transaction (as opposed to a distressed or
forced transaction) at the date of the financial statements under current market
conditions.  Specifically, it reaffirms the need to use judgment to
ascertain if a formerly active market has become inactive and in determining
fair values when markets have become inactive.  This guidance is effective
for interim and annual periods ended after June 15, 2009, but entities may early
adopt this guidance for the interim and annual periods ended after March 15,
2009. The adoption of such standard did not have a material impact on the
Company’s consolidated financial statements.





F-18




CC JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





In August
2009, the FASB issued FASB ASU 2009-05, “Measuring Liabilities at Fair
Value”. FASB ASU 2009-05 amends FASB ASC 820, “Fair Value Measurements”.
 Specifically, FASB ASU 2009-05 provides clarification that in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using one or more of the following methods: 1) a valuation technique that uses
a) the quoted price of the identical liability when traded as an asset or b)
quoted prices for similar liabilities or similar liabilities when traded as
assets and/or 2) a valuation technique that is consistent with the principles
of FASB ASC 820 of the Accounting Standards Codification (e.g. an
income approach or market approach).  FASB ASU 2009-05 also clarifies that
when estimating the fair value of a liability, a reporting entity is not
required to adjust to include inputs relating to the existence of
transfer restrictions on that liability.  The adoption of such
standard did not have a material impact on the Company’s consolidated financial
statements.





In May
2009, the FASB issued SFAS No. 165, “Subsequent Events”, (FASB ASC 855-10”)
which establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial
statements.  The statement is effective for interim and annual periods
ended after June 15, 2009.  The standard was subsequently amended by
FASB ASU 2010-09 which exempts an entity that is an SEC filer from the
requirement to disclose the date through which subsequent events have been
evaluated.





In
September 2009, the Emerging Issues Task Force reached final consensus on FASB
ASU 2009-13, “Revenue Arrangements with Multiple Deliverables”.  FASB ASU
2009-13 addresses how to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting, and how the arrangement
consideration should be allocated among the separate units of accounting.
 This ASU will be effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15, 2010.
 Early adoption is permitted.  The adoption of such standard did not
have a material impact on the Company’s consolidated financial
statements.





In
December 2009, the FASB issued FASB ASU 2009-17, Consolidation (“FASB ASC 810):
Improvements to Financial Reporting by Enterprises involved with Variable
Interest Entities.  This ASU amends the FASB Accounting Standards
Codification for statement No.167.  In June 2009, the FASB issued SFAS
No.167, Amendments to FASB Interpretation No. 46(R), which requires an
enterprise to perform an analysis and ongoing reassessments to determine whether
the enterprises variable interest or interests give it a controlling financial
interest in a variable interest entity and amends certain guidance for
determining whether an entity is a variable interest entity. It also requires
enhanced disclosures that will provide users of financial statements with more
transparent information about an enterprises involvement in a variable
interest entity.  SFAS No.167 is effective as of the beginning of each
reporting entity’s first annual reporting period that begins after November 15,
2009 and for all interim reporting periods after that, with early application
prohibited. The adoption of such standard did not have a material impact on
the Company’s consolidated financial statements.


F-19


CC JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





In
January 2010, the FASB issued Accounting Standards Update 2010-05 (ASU 2010-05),
“Compensation – Stock Compensation (Topic 718)”.  This standard
codifies EITF Topic D-110 Escrowed Share Arrangements and the Presumption of
Compensation and is effective immediately. The provisions of ASU 2010-05 did not
have a material effect on the Company’s consolidated financial statements and is
effective immediately.





In
January 2010, the FASB issued Accounting Standards Update 2010-06 (ASU 2010-06),
“Fair Value Measurements and Disclosures (Topic 820)”: Improving Disclosures
about Fair Value Measurements.  This amendment to Topic 820 has
improved disclosures about fair value measurements on the basis of input
received from the users of financial statements.  This is effective
for interim and annual reporting periods beginning after December 15, 2009,
except for the disclosures about purchases, sales, issuances, and settlements in
the roll forward of activity in Level 3 fair value
measurements.  Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years.  Early adoption is permitted.  The provisions of ASU
2010-06 did not have a material effect on the Company’s consolidated financial
statements.




In
February 2010, the FASB issued Accounting Standards Update 2010-09 (ASU
2010-09), "Subsequent Events (Topic 855)."  The amendments remove the
requirements for an SEC filer to disclose a date, in both issued and revised
financial statements, through which subsequent events have been
reviewed.  Revised financial statements include financial statements
revised as a result of either correction of an error or retrospective
application of U.S. GAAP.  ASU 2010-09 is effective for interim or
annual financial periods ending after June 15, 2010.  The provisions
of ASU 2010-09 did not have a material effect on the Company’s consolidated
financial statements.





In
February 2010, the FASB issued Accounting Standards Update 2010-10 (ASU
2010-10), "Consolidation (Topic 810)."  The amendments to the
consolidation requirements of Topic 810 resulting from the issuance of Statement
167 are deferred for a reporting entity's interest in an entity (1) that has all
the attributes of an investment company or (2) for which it is industry practice
to apply measurement principles for financial reporting purposes that are
consistent with those followed by investment companies.  An entity
that qualifies for the deferral will continue to be assessed under the overall
guidance on the consolidation of variable interest entities in Subtopic 810-10
(before the Statement 167 amendments) or other applicable consolidation
guidance, such as the guidance for the consolidation of partnerships in Subtopic
810-20.  The deferral is primarily the result of differing
consolidation conclusions reached by the International Accounting Standards
Board ("IASB") for certain investment funds when compared with the conclusions
reached under Statement 167.  The deferral is effective as of the
beginning of a reporting entity's first annual period that begins after November
15, 2009, and for interim periods within that first annual reporting period,
which coincides with the effective date of Statement 167.  Early
application is not permitted.  The provisions of ASU 2010-10 are
effective for the Company beginning in 2010. The adoption of ASU 2010-10 did not
have a material impact on the Company’s consolidated financial
statements.


F-20




CC
JEWELRY CO., LTD. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





In March
2010, the FASB issued Accounting Standards Update 2010-11 (ASU 2010-11),
"Derivative and Hedging (Topic 815)."  All entities that enter into
contracts containing an embedded credit derivative feature related to the
transfer of credit risk that is not only in the form of subordination of one
financial instrument to another will be affected by the amendments in this
Update because the amendments clarify that the embedded credit derivative scope
exception in paragraph 815-15-15-8 through 15-9 does not apply to such
contracts.  ASU 2010-11 is effective at the beginning of the reporting
entity's first fiscal quarter beginning after June 15, 2010.  The
provisions of ASU 2010-11 did not have a material effect on the Company’s
consolidated financial statements.





In April
2010, the FASB issued Accounting Standards Update 2010-13 (ASU 2010-13),
"Compensation—Stock Compensation (Topic 718)." This Update provides
amendments to Topic 718 to clarify that an employee share-based payment award
with an exercise price denominated in the currency of a market in which a
substantial portion of the entity’s equity securities trades should not be
considered to contain a condition that is not a market, performance, or service
condition. Therefore, an entity would not classify such an award as a liability
if it otherwise qualifies as equity. The amendments in ASU 2010-13 are effective
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2010. The provision of ASU 2010-13 are not expected to have a
material effect on the Company’s consolidated financial
statements.


F-21


CC
JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 NOTE
3 – CONCENTRATION
 
 Concentration
of major customers and suppliers
 
 Years ended December 31,2009
                  
                  
                  2008Major
      customer with revenues of more than 10% of the Company’s
    salesSales
      to major customer
                  
                  $
                  15,103,755
                  
                  
                  $
                  18,859,795Percentage
      of sales
                  
                  
                  25.63
                  %
                  
                  
                  31.56
                  %Number
                  
                  
                  1
                  
                  
                  
                  1Major
      suppliers with purchases of more than 10% of the Company's
      purchasesPurchases
      from major suppliers
                  
                  $
                  15,376,177
                  
                  
                  $
                  18,705,319Percentage
      of purchase
                  
                  
                  32.95
                  %
                  
                  
                  34.12
                  %Number
                  
                  
                  2
                  
                  
                  
                  2
 
 Accounts
receivable related to the Company’s major customer comprised 48.49% and 27.65%
of all accounts receivable as of December 31, 2009 and 2008,
respectively.
 
 Accounts
payable related to the Company’s major suppliers comprised 1.36% and 1.00% of
all accounts payable as of December 31, 2009 and 2008,
respectively.
 
 NOTE
4 – ACCOUNTS RECEIVABLE
 
 Accounts
receivable is net of allowance for doubtful accounts.  Changes in the
allowance for doubtful accounts are as follows:
 
 December 31,2009
                  
                  
                  2008Beginning
      balance
                  
                  $
                  716,144
                  
                  
                  $
                  -Allowance
      for doubtful accounts
                  
                  
                  13,625
                  
                  
                  
                  716,144Ending
      balance
                  
                  $
                  729,769
                  
                  
                  $
                  716,144
  F-22
  CC
JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 NOTE
5 – NOTES RECEIVABLE
 
 December 31,2009
                    
                    
                    2008Ma
      JianPrinciple
                    
                    $
                    353,946
                    
                    
                    $
                    353,068Interest
      receivable
                    
                    
                    133,704
                    
                    
                    
                    93,262487,650
                    
                    
                    
                    446,330Yang
      PengPrinciple
                    
                    
                    15,801
                    
                    
                    
                    15,761Interest
      receivable
                    
                    
                    8,985
                    
                    
                    
                    4,08224,786
                    
                    
                    
                    19,843Zheng
      QihaiPrinciple
                    
                    
                    -
                    
                    
                    
                    49,701Interest
      receivable
                    
                    
                    -
                    
                    
                    
                    10,746-
                    
                    
                    
                    60,447Yuncheng
      City Longda Industrial Trading Co., Ltd.Principle
                    
                    
                    248,640
                    
                    
                    
                    248,023Interest
      receivable
                    
                    
                    77,725
                    
                    
                    
                    53,113326,365
                    
                    
                    
                    301,136$
                    838,801
                    
                    
                    $
                    827,756
 
 In 2005,
Ma Jian, a third party individual, entered into an agreement with the Company to
borrow money on a short term period.  The note receivable is interest
bearing with a 11.21% interest rate per annum, unsecured, due on demand and has
no fixed repayment term.
 
 In 2005,
Yang Peng, a third party individual, entered into an agreement with the Company
to borrow money on a short term period.  The note receivable is interest
bearing with a 18% interest rate per annum, unsecured, due on demand and has no
fixed repayment term.
 
 In 2005,
Zheng Haiqi, a third party individual, entered into an agreement with the
Company to borrow money on a short term period.  The note receivable
is interest bearing with a 18% interest rate per annum, unsecured and due on
demand.  The balance with Zheng Haiqi was settled as of December 31,
2009.
  F-23
  CC
JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 NOTE
5 – NOTES RECEIVABLE (CONTINUED)
 
 In 2006,
Yuncheng City Longda Industrial Trading Co., Ltd., a third party
company, entered into an agreement with the Company to borrow money on a
short term.  The note receivable is interest bearing with a 9.71%
interest rate per annum, unsecured, due on demand and has no fixed repayment
term.
 
 The notes
receivable were provided to these third party individuals and companies to
satisfy their working capital needs.  The above individuals and companies
are not related to the Company.  Interest income, which is included in
interest expenses, net in the statements of operations, was $74,227 and $75,096
for the years ended December 31, 2009 and 2008, respectively.
 
 NOTE
6 – INVENTORIES
 
 December 31,2009
                        
                        
                        2008Raw
      Materials
                        
                        $
                        824,654
                        
                        
                        $
                        760,589Finished
      Goods
                        
                        
                        29,123,853
                        
                        
                        
                        24,822,425Work-in-Process
                        
                        
                        1,560,030
                        
                        
                        
                        404,216$
                        31,508,537
                        
                        
                        $
                        25,987,230
 
 Finished
goods pledged as collateral for bank loans was $6,852,307 and $135,776 at
December 31, 2009 and 2008. See Note 10.
  F-24
  CC
JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 NOTE
7 – PROPERTY, PLANT AND EQUIPMENT
 
 Property,
plant and equipment consist of the following:
 
 December 31,2009
                    
                    
                    2008Leasehold
      Improvements
                    
                    $
                    5,508,937
                    
                    
                    $
                    4,200,070Furniture
      and Office Equipment
                    
                    
                    776,238
                    
                    
                    
                    582,360Machinery
      and Equipment
                    
                    
                    45,752
                    
                    
                    
                    34,163Motor
      Vehicles
                    
                    
                    500,976
                    
                    
                    
                    499,7346,831,903
                    
                    
                    
                    5,316,327Less:
       Accumulated depreciationLeasehold
      Improvements
                    
                    
                    (1,995,976
                    )
                    
                    
                    (1,735,481
                    )Furniture
      and Office Equipment
                    
                    
                    (482,149
                    )
                    
                    
                    (272,373
                    )Machinery
      and Equipment
                    
                    
                    (31,009
                    )
                    
                    
                    (22,646
                    )Motor
      Vehicles
                    
                    
                    (208,706
                    )
                    
                    
                    (110,748
                    )(2,717,840
                    )
                    
                    
                    (2,141,248
                    )Property,
      plant and equipment, net
                    
                    $
                    4,114,063
                    
                    
                    $
                    3,175,079
 
 Depreciation
expense for the years ended December 31, 2009 and 2008 was $1,174,253 and
$1,467,333, respectively.  As of December 31, 2009 and 2008, no
property, plant and equipment was pledged as collateral for the Company’s
debts.
 
 The net
book value of $151,794 and $749,369 of leasehold improvements was retired during
the years ended December 31, 2009 and 2008, respectively.  No gain or
loss was incurred from the assets retirement.
  F-25
  CC
JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 NOTE
8 – INVESTMENTS
 
 December 31,2009
                  
                  
                  2008Investment
      – cost method:Datong
      Tianfu Jewelry Co., Ltd.
                  
                  $
                  526,531
                  
                  
                  $
                  525,225Investment
      in unconsolidated subsidiary – equity method:Shanxi
      Biaopu Pawn Store Co., Ltd
                  
                  $
                  1,755,105
                  
                  
                  $
                  1,750,752
 
 In 2006,
the Company through its wholly-owned subsidiary Taiyuan BPCC purchased 20%
of Datong Tianfu Jewelry Co., Ltd. (“Datong Tianfu”) in consideration of RMB
1,600,000 (approximately $204,669).  In 2008, the Company increased
its investment in Datong Tianfu in consideration of RMB 2,000,000 (approximately
$291,792), which brings to the total amount of investment to RMB 3,600,000
(approximately $525,225), while the percentage of ownership remains 20% as
Datong Tianfu increased its registered capital from RMB 8,000,000 to RMB
18,000,000 in 2008.  As of December 31, 2009 and 2008, although the
Company has 20% in the investment, the Company has no representation on Datong
Tianfu’s board of directors and therefore, does not exercise significant
influence over the investee’s operation.  The Company accounts for the
investment under the cost method. Investment income is recognized by the
Company when the investee declares a dividend.  The Company did not
receive dividend income from Datong Tianfu for the years ended December 31, 2009
and 2008.
 
 In 2007,
the Company through its wholly-owned subsidiaries Taiyuan BPCC and Shanxi
Zhongyao purchased 80% equity interest of Shanxi Biaopu Pawn Store Co., Ltd.
(“Shanxi Biaopu”) in consideration of RMB 12,000,000 (approximately
$1,640,667).  Shanxi Biaopu has not started operation as of December
31, 2009 and therefore, the Company decided not to include Shanxi Biaopu in the
consolidated financial statements at December 31, 2009 and 2008.  The
Company accounted for its investment in Shanxi Biaopu using the equity
method.
 
 NOTE
9 – RELATED PARTY TRANSACTIONS
 
 (I)
              Due
      to Shareholder:
 
 December 31,2009
                        
                        
                        2008Due
      to shareholder
                        
                        $
                        5,387,303
                        
                        
                        $
                        8,162,935
 
 Mr. Chen
Quanxiang is the chief executive officer and controlling interest shareholder of
the Company.  From time to time, Mr. Chen paid on behalf of the
Company for business purposes.
  F-26
  CC
JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 NOTE
9 – RELATED PARTY TRANSACTIONS (CONTINUED)
 
 (II)
              Due
      from Employees
 
 December 31,2009
                    
                    
                    2008Due
      from employees
                    
                    $
                    566,598
                    
                    
                    $
                    547,991
 
 Due from
employees are interest-free, unsecured and have no fixed repayment
term.  The amounts of due from employees primarily represent the net
amount of advances to sales personnel from the Company for business and
travelling related expenses.
 
 (III)
              Due
      from / to Related Parties
 
 Due from
related parties consists of the followings:
 
 December 31,2009
                    
                    
                    2008Guo
      Mao
                    
                    $
                    675,143
                    
                    
                    $
                    1,023,528Shanxi
      Biaopu
                    
                    
                    57,902
                    
                    
                    
                    394,241Datong
      Tianfu
                    
                    
                    (44,712
                    )
                    
                    
                    150,901$
                    688,333
                    
                    
                    $
                    1,568,670
 
 Guo Mao
is a jewelry store owned by Mr. Chen Quanxiang’s wife, Ms. Yu
Man.  The balances of due from Guo Mao primarily represent the
receivable arising from jewelry sales of the Company.  The Company
made sales with Guo Mao for the amount of $143,572 and $1,478,522 for the years
ended December 31, 2009 and 2008.
 
 Datong
Tian is a jewelry store that the Company owns 20% of its equity interest at
cost.  The balances of due from / to Datong Tianfu primarily represent
the receivables arising from jewelry sales of the Company or advances from
Datong Tianfu to purchase jewelry.  The Company made sales with Datong
Tianfu for the amount of $2,574,898 and $1,673,092 for the years ended December
31, 2009 and 2008.
 
 Shanxi
Biaopu is a pawn store that the Company owns 80% of its equity
interest.  The balances of due from Shanxi Biaopu primarily represent
advances to Shanxi Biaopu to meet the cash needs for maintaining Shanxi Biaopu’s
business license and paying various administrative expenses to the local
government.
  F-27
  CC
JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 NOTE
10 – SHORT-TERM BANK LOANS
 
 Short-term
bank loans are summarized as follows:
  Interest per
                                      
                                      
                                      December 31,Bank Name
                                      
                                      Annum
                                      
                                      
                                      2009
                                      
                                      
                                      2008Due
      November 18, 2010, guaranteed by Shanxi Small Business Underwriting Co.,
      Ltd., a third party company, and collateralized by the Company’s
      inventory
                                      
                                      Shanxi
      Trust Co; Ltd.
                                      
                                      
                                      6.9030
                                      %
                                      
                                      $
                                      1,755,104
                                      
                                      
                                      $
                                      -Due
      August 25, 2010, subsequently repaid on due date, guaranteed by Shanxi
      Zhongyao, Shanxi Boye, subsidiaries of the Company, and the shareholders
      of the Company
                                      
                                      Industrial
      Bank,  Taiyuan Branch
                                      
                                      
                                      6.9030
                                      %
                                      
                                      
                                      438,776
                                      
                                      
                                      
                                      -Due
      August 23, 2010, subsequently repaid on due date, guaranteed by Taiyuan
      Small Business Underwriting Co., Ltd., a third party company and
      collateralized by the Company’s inventory, further guaranteed by Taiyuan
      BPCC, Shanxi Boye, subsidiaries of the Company, and a shareholder of the
      Company
                                      
                                      Taiyuan
      Commercial Bank Wucheng Branch
                                      
                                      
                                      7.9650
                                      %
                                      
                                      
                                      511,905
                                      
                                      
                                      
                                      -Due
      August 15, 2010, subsequently repaid on due date, guaranteed by Shanxi
      Zhongyao, Shanxi Boye, subsidiaries of the Company, and the shareholders
      of the Company
                                      
                                      Industrial
      Bank Taiyuan Branch
                                      
                                      
                                      6.9030
                                      %
                                      
                                      
                                      585,035
                                      
                                      
                                      
                                      -Due
      August 10, 2010, subsequently repaid on due date, guaranteed by Shanxi
      Zhongyao, Shanxi Boye, subsidiaries of the Company, and the shareholders
      of the Company
                                      
                                      Industrial
      Bank Taiyuan Branch
                                      
                                      
                                      6.9030
                                      %
                                      
                                      
                                      438,776
                                      
                                      
                                      
                                      -Due
      July 17, 2010, subsequently repaid on due date, guaranteed by Taiyuan
      Small Business Underwriting Co., Ltd. and collateralized by the Company’s
      inventory, further guaranteed by Taiyuan BPCC, Shanxi Boye, subsidiaries
      of the Company, and a shareholder of the Company
                                      
                                      China
      Everbright Bank Xinjian Branch
                                      
                                      
                                      10.5000
                                      %
                                      
                                      
                                      365,647
                                      
                                      
                                      
                                      -
  F-28
  CC
JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 NOTE
10 – SHORT-TERM BANK LOANS (CONTINUED)
  Interest per
                                      
                                      
                                      December 31,Bank Name
                                      
                                      Annum
                                      
                                      
                                      2009
                                      
                                      
                                      2008Due
      April 23, 2010, subsequently repaid on due date, guaranteed by Shanxi
      Small Business Underwriting Co., Ltd., a third party company and
      collateralized by the Company’s inventory
                                      
                                      Shanxi
      Trust Co., Ltd.
                                      
                                      
                                      6.9030
                                      %
                                      
                                      $
                                      1,170,070
                                      
                                      
                                      $
                                      -Due
      April 7, 2010, subsequently repaid on due date, guaranteed by Shanxi
      Zhongyao, a subsidiary of the Company
                                      
                                      Taiyuan
      Rural Cooperative Credit Union
                                      
                                      
                                      6.9030
                                      %
                                      
                                      
                                      1,462,587
                                      
                                      
                                      
                                      -Due
      January 14, 2010, subsequently repaid on due date, guaranteed by Shanxi
      Changtong Science and Trading Group Co., Ltd., a third party
      company
                                      
                                      Industrial
      Bank Taiyuan Branch
                                      
                                      
                                      6.9030
                                      %
                                      
                                      
                                      1,462,587
                                      
                                      
                                      
                                      -Due
      August 14, 2009, subsequently repaid on due date, guaranteed by Shanxi
      Zhongyao, Shanxi Boye, subsidiaries of the Company, and the shareholders
      of the Company
                                      
                                      Industrial
      Bank Taiyuan Branch
                                      
                                      
                                      9.7110
                                      %
                                      
                                      
                                      -
                                      
                                      
                                      $
                                      437,688Due
      July 17, 2009, subsequently repaid on due date, guaranteed by Shanxi
      Zhongyao, Shanxi Boye, subsidiaries of the Company, and the shareholders
      of the Company
                                      
                                      Industrial
      Bank Taiyuan Branch
                                      
                                      
                                      9.7110
                                      %
                                      
                                      
                                      -
                                      
                                      
                                      
                                      437,688Due
      July 13, 2009, subsequently repaid on due date, guaranteed by Taiyuan
      Small Business Underwriting Co., Ltd., a third party company, and
      collateralized by the Company’s inventory, further guaranteed by Taiyuan
      BPCC, Shanxi Boye, subsidiaries of the Company, and a shareholder of the
      Company
                                      
                                      Taiyuan
      Commercial Bank Wucheng Branch
                                      
                                      
                                      11.2050
                                      %
                                      
                                      
                                      -
                                      
                                      
                                      
                                      577,748
  F-29
  CC
JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 NOTE
10 – SHORT-TERM BANK LOANS (CONTINUED)
  Interest per
                            
                            
                            December 31,Bank Name
                            
                            Annum
                            
                            
                            2009
                            
                            
                            2008Due
      July 3, 2009, subsequently repaid on due date, guaranteed by Shanxi
      Zhongyao, Shanxi Boye , subsidiaries of the Company, and the shareholders
      of the Company
                            
                            Industrial
      Bank
                              Taiyuan
      Branch
                            
                            
                            9.7110
                            %
                            
                            $
                            -
                            
                            
                            $
                            583,584Due
      March 5, 2009, subsequently repaid on due date, guaranteed by Shanxi
      Changtong Science and Trading Group Co., Ltd., a third party
      company
                            
                            Industrial
      Bank Taiyuan Branch
                            
                            
                            12.3696
                            %
                            
                            
                            -
                            
                            
                            
                            1,458,959Due
      January 7, 2009, subsequently repaid on due date, guaranteed by Taiyuan
      Small Business Underwriting Co., Ltd., a third party company, further
      guaranteed by Taiyuan BPCC, Shanxi Boye, subsidiaries of the Company, and
      a shareholder of the Company
                            
                            China
      Everbright Bank Xinjian Branch
                            
                            
                            10.8000
                            %
                            
                            
                            -
                            
                            
                            
                            437,688$
                            8,190,487
                            
                            
                            $
                            3,933,355
 
 Short-term
bank loans are obtained from local banks in China.  All the short-term
bank loans are repayable within one year.  The weighted average annual
interest rate of the short-term bank loans was 8.43% and 12.23% as of December
31, 2009 and 2008, respectively.  Interest expense was $511,361 and
$470,855 for the years ended December 31, 2009 and 2008,
respectively.
 
  F-30
  CC
JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 NOTE
11 – NOTES PAYABLES
 
 Notes
payable consists of the followings:
 
 Interest per
                  
                  
                  December 31,Annum
                  
                  
                  2009
                  
                  
                  2008Shenzhen
      Jinbaitai Jewelry Co., Ltd.
                  
                  
                  24.00
                  %
                  
                  $
                  155,339
                  
                  
                  $
                  -Shenzhen
      Yuehao Jewelry Co., Ltd.
                  
                  
                  21.60
                  %
                  
                  
                  488,315
                  
                  
                  
                  -Shenzhen
      Jinlong Jewelry Co., Ltd.
                  
                  
                  14.40
                  %
                  
                  
                  2,743
                  
                  
                  
                  -Shenzhen
      Yidalong Jewelry Co.,Ltd.
                  
                  
                  18.00
                  %
                  
                  
                  108,458
                  
                  
                  
                  -Shenzhen
      Jinbaitai Jewelry Co., Ltd.
                  
                  
                  24.00
                  %
                  
                  
                  -
                  
                  
                  
                  247Shenzhen
      Yuehao Jewelry Co., Ltd.
                  
                  
                  21.60
                  %
                  
                  
                  -
                  
                  
                  
                  213,959Shenzhen
      Tongxin Jewelry Co., Ltd.
                  
                  
                  21.60
                  %
                  
                  
                  -
                  
                  
                  
                  2,947Shenzhen
      Jinlong Jewelry Co., Ltd.
                  
                  
                  14.40
                  %
                  
                  
                  -
                  
                  
                  
                  4,013Huang
      Wenjing
                  
                  
                  21.60
                  %
                  
                  
                  -
                  
                  
                  
                  542,577Shenzhen
      Yidalong Jewelry Co.,Ltd.
                  
                  
                  18.00
                  %
                  
                  
                  -
                  
                  
                  
                  31,607$
                  754,855
                  
                  
                  $
                  795,350
 
 The notes
payable were issued to the above third parties, companies and individual, for
purchasing merchandise.  These notes bear interest varying from 14.40%
to 24.00% per annum.  Interest expense was $104,164 and $290,464 for
the years ended December 31, 2009 and 2008, respectively.  These notes
are unsecured, due on demand and have no fixed repayment term.
 
 NOTE
12 – OTHER PAYABLES AND ACCRUED EXPENSES
 
 Other
payables and accrued expenses consist of the following:
 
 December 31,2009
                  
                  
                  2008Advance
      from customers
                  
                  $
                  20,006
                  
                  
                  $
                  265,499Accrued
      payroll and bonuses
                  
                  
                  406,131
                  
                  
                  
                  504,578Accrued
      store operating expenses
                  
                  
                  68,659
                  
                  
                  
                  100,474Accrued
      advertising expense
                  
                  
                  82,469
                  
                  
                  
                  139,871Accrued
      rental expense
                  
                  
                  13,324
                  
                  
                  
                  125,852Accrued
      interest expense
                  
                  
                  32,717
                  
                  
                  
                  -Other
      accrued expenses
                  
                  
                  83,149
                  
                  
                  
                  3,632Other
      payables
                  
                  
                  4,153
                  
                  
                  
                  37,473$
                  710,608
                  
                  
                  $
                  1,177,379
  F-31
  CC
JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 NOTE
12 – INCOME TAX
 
 Square C
Commerce Company Ltd. (“Square C”) is incorporated and registered in British
Virgin Islands and is exempt from income tax.
 
 Massfit
(HK) Corporation Limited (“Massfit”) is incorporated and registered in Hong Kong
and is free of income tax as long as they do not operate in Hong Kong under the
local tax law.  Since Massfit does not have operations for the years
ended December 31, 2009 and 2008, they did not have any income tax expense for
the years ended December 31, 2009 and 2008.
 
 On March
16, 2007, the National People’s Congress of China approved the new Corporate
Income Tax Law of the People’s Republic of China (the “New CIT Law”), which is
effective from January 1, 2008.  Prior to January 1, 2008, the CIT
rate applicable to our subsidiaries in the PRC is 33%.  After January
1, 2008, under the New CIT Law, the corporate income tax rate applicable to our
Chinese subsidiaries is 25%.
 
 In
accordance with the New CIT Law, enterprises established under the laws of
foreign countries or regions and whose “place of effective management” is
located within the PRC territory are considered PRC resident enterprises and
subject to the PRC income tax at the rate of 25% on worldwide income.  The
definition of “place of effective management" refers to an establishment that
exercises, in substance, overall management and control over the production and
business process, personnel, accounting and properties of an enterprise.
 As of December 31, 2009, no detailed interpretation or guidance has been
issued to define “place of effective management”. Furthermore, as of
December 31, 2009, the administrative practice associated with interpreting and
applying the concept of “place of effective management” is unclear.  If the
Company’s non-PRC incorporated entities are deemed PRC tax residents, such
entities would be subject to PRC tax under the New CIT Law.  The Company
has analyzed the applicability of this law, as of December 31, 2009, and the
Company has not accrued for PRC tax on such basis.  The Company will
continue to monitor changes in the interpretation or guidance of this
law.  Income taxes payable was $3,625,946 and $1,472,015 at
December 31, 2009 and 2008, respectively.
 
 The New
CIT Law also imposes a 10% withholding income tax, subject to reduction based on
tax treaty where applicable, for dividends distributed by a foreign invested
enterprise to its immediate holding company outside China.  Such dividends
were exempted from PRC tax under the previous income tax law and regulations.
 The foreign invested enterprise is subject to the withholding tax starting
from January 1, 2008.  There were no such dividends distributed in the
year ended December 31, 2009 or 2008.
  F-32
  CC
JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 NOTE
12 – INCOME TAX (CONTINUED)
 
 Income
tax expenses consist of the following:
 
 Years Ended December 31,2009
                    
                    
                    2008Current
                    
                    $
                    2,170,785
                    
                    
                    $
                    1,179,861Deferred
                    
                    
                    -
                    
                    
                    
                    -Total
                    
                    $
                    2,170,785
                    
                    
                    $
                    1,179,861
 
 Reconciliation
from the expected income tax expenses calculated with reference to the statutory
tax rate in the PRC of 25% for 2009 and 2008 is as follows:
 
 Years Ended December 31,2009
                    
                    
                    2008Computed
      “expected” income taxes
                    
                    $
                    2,099,368
                    
                    
                    $
                    1,098,096Permanent
      differences:Non-deductible
      entertainment fees
                    
                    
                    6,232
                    
                    
                    
                    14,867Non-deductible
      interest expense
                    
                    
                    28,329
                    
                    
                    
                    52,142Other
      non-deductible expenses
                    
                    
                    36,856
                    
                    
                    
                    14,756$
                    2,170,785
                    
                    
                    $
                    1,179,861
 
 The
Company uses FASB ASC 740 (formerly FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”)). – AN INTERPRETATION OF FASB STATEMENT NO. 109,
ACCOUNTING FOR INCOME TAXES.  The Interpretation addresses the
determination of whether tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements.  Under FIN 48, we
may recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position.  The tax
benefits recognized in the financial statements from such a position should be
measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement.  FASB ASC 740
also provides guidance on recognition, classification, interest and penalties on
income taxes, accounting in interim periods and requires increased disclosures.
 At December 31, 2009 and 2008, the Company did not have a liability for
unrecognized tax benefits.
 
  F-33
  CC
JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 NOTE
13 – DIVIDEND DISTRIBUTION
 
 On
February 4, 2008 and April 24, 2008, the Company through its wholly-owned
subsidiary, Shanxi Zhongyao, paid $94,891 (RMB 660,643) and $143,633 (RMB
1,000,000) cash dividends to the Company’s shareholders.  On July 22,
2009, the Company through its wholly-owned subsidiary, Shanxi Zhongyao, paid
$29,236 (RMB 200,000) cash dividends to the Company’s shareholders.
 
 NOTE
14 – COMMITMENTS
 
 Operating
Lease
 
 The
Company rents certain retail and office spaces under operating leases that
generally range from 3 to 10 years and may contain minimum rent
escalations.  The Company recognizes the minimum rent payments on a
straight-line basis over the term of the lease.  Rental expense, which
is included in both selling and general and administrative expenses, was
$912,275 and $761,941 for the years ended December 31, 2009 and 2008,
respectively.  A summary of the future minimum annual rental
commitments under the operating leases is as follows:
 
 Year ending December 31,
                    
                    Annual Minimum Rental Payment2010
                    
                    $
                    1,082,1382011
                    
                    
                    891,1552012
                    
                    
                    970,4482013
                    
                    
                    683,3252014
                    
                    
                    741,834Thereafter
                    
                    
                    4,153,222Total
      minimum payment
                    
                    $
                    8,522,122
  F-34
  CC
JEWELRY CO., LTD. AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 NOTE
15 – GEOGRAPHICAL SALES AND SEGMENT
 
 Information
for the Company’s gross sales by geographical area for the years ended December
31, 2009 and 2008 are as follows:
 
 Years ended December 31,2009
                    
                    
                    2008Northwest
      China
                    
                    $
                    54,467,196
                    
                    
                    $
                    56,952,182Southwest
      China
                    
                    
                    2,241,955
                    
                    
                    
                    909,898Central
      China
                    
                    
                    622,391
                    
                    
                    
                    727,820Eastern
      China
                    
                    
                    485,386
                    
                    
                    
                    20,261Northeast
      China
                    
                    
                    534,851
                    
                    
                    
                    774,389Northern
      China
                    
                    
                    568,640
                    
                    
                    
                    383,220$
                    58,920,419
                    
                    
                    $
                    59,767,770
 
 The
Company operates one business segment for the years ended December 31, 2009 and
2008.  All of the Company’s sales are generated in the PRC and
substantially all the Company’s assets are located in PRC.
 
 NOTE
16 – SUBSEQUENT EVENTS
 
 We have
evaluated all events or transactions that occurred after December 31, 2009 up
through the date we issued the consolidated financial statements.
  F-35