UNITED
        STATES
 SECURITIES
        AND EXCHANGE COMMISSION
 WASHINGTON,
        D.C. 20549
 
 FORM
        10-Q
 
 (Mark
        One)
 
 x   
        QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
        OF
        1934
 
 For
        the
        quarterly period ended June 30, 2008
 
 o   
TRANSITIONAL
        REPORT
        UNDER SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE
        ACT OF 1934
 
 For
        the
        transition period from ____________________ to
        _________________________
 
 Commission
        file number: 000-49852
 
 DAHUA
        INC.
 (Exact
        name of small business issuer as specified in its charter)
 Delaware
                04-3616479State
                    or other jurisdiction
                (I.R.S.
                    Employer Identification No.)of
                    incorporation or organization)
 19 th Floor,
        Building C, Tianchuangshiyuan, Huizhongbeili,
 Chaoyang
        District, Beijing, China, 100012
 (Address
        of principal executive offices)
 
 86-10-6480-1527
 (Issuer's
        telephone number)
 
 N/A
 (Former
        name, former address and former fiscal year, if changed since last
        report)
 
 Check
        whether the issuer: (1) filed all reports required to be filed by Section
        13 or
        15 (d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the Registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days.
 Yes x
        No o
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, a non-accelerated filer, or a smaller reporting company
        as
        defined in Rule 12b-2 of the Exchange Act.
 Large
        Accelerated Filer o 
Accelerated Filer o 
        Non-accelerated Filer o 
Smaller Reporting Company x
 
 APPLICABLE
        ONLY TO CORPORATE ISSUERS
 
 State
        the
        number of shares outstanding of each of the issuer's classes of common equity,
        as of the latest practicable date: 25,015,000 shares of common stock, par
        value
        $.0001, as of August 14, 2008
 
 -1-
 
 DAHUA
        INC.
 
 Table
        of
        Contents
 
 Part
        I.
        Financial Information
 
 Item1.
        Financial Statements
 Consolidated
                    Balance Sheet as of June 30, 2008 (unaudited) andDecember
                    31, 2007
                
                
                3Consolidated
                    Statements of Operations and Comprehensive Income (Loss)for
                    the Three and Six Months Ended June 30, 2008 and 2007 (Unaudited)
                
                
                4Consolidated
                    Statements of Cash Flows for the Six MonthsEnded
                    June 30, 2008 and 2007 (Unaudited)
                
                
                5Notes
                    to Consolidated Financial Statements
                
                
                6Item
                    2. Management's Discussion and Analysis or Plan of Operation
                
                
                11Item
                    3. Qualitative and Quantitative Disclosures About Market Risk
                
                
                15Item
                    4T. Controls and Procedures
                
                
                16Part
                    II. Other InformationItem
                    1. Legal Information
                
                
                17Item
                    1A. Risk Factors
                
                
                18Item
                    2. Unregistered Sales of Equity Securities and Use of Proceeds
                
                
                25Item
                    3. Defaults Upon Senior Securities
                
                
                25Item
                    4. Submission of Matters to a Vote of Security Holders
                
                
                25Item
                    5. Other Information
                
                
                25Item
                    6. Exhibits and Reports on Form 8-K
                
                
                25Signatures
                
                
                26
 
 -2-
 
 PART
        I.
        FINANCIAL INFORMATION
 
 
 ITEM
        1.
        Financial Statements
 
 DAHUA,
        INC.
 Consolidated
        Balance Sheets as of June 30, 2008 and
 December
        31, 2007
 ASSETS
 June
                    30, 2008
                
                December
                    31, 2007(unaudited)Current
                    assets:Cash
                    and cash equivalents
                
                $
                1,514,540
                
                $
                1,893,626Inventory
                    (note 4)
                
                
                7,066,614
                
                
                6,501,143Prepaid
                    expenses
                
                
                157,795
                
                
                148,171Total
                    Current Assets
                
                
                8,738,949
                
                
                8,542,940Equipment:Computer
                    equipment
                
                
                56,247
                
                
                52,816Office
                    equipment
                
                
                101,982
                
                
                93,983Telephones
                
                
                3,266
                
                
                3,067Vehicles
                
                
                557,099
                
                
                508,748Total
                    Equipment
                
                
                718,594
                
                
                658,614Less:
                    Accumulated depreciation
                
                
                (199,190
                )
                
                (135,119
                )Net
                    equipment
                
                
                519,404
                
                
                523,495Construction
                    in progress (note 5)
                
                
                1,436,124
                
                
                788,896Prepaid
                    construction in progress
                
                
                123,735
                
                
                -Other
                    receivables (note 12)
                
                
                316,088
                
                
                300,054Prepaid
                    tax (note 9)
                
                
                433,412
                
                
                234,608Restricted
                    cash (note 8)
                
                
                724,029
                
                
                679,872Total
                    Assets
                
                $
                12,291,741
                
                $
                11,069,865
  LIABILITIES
        AND STOCKHOLDERS' EQUITY
 Current
                    Liabilities:Accounts
                    payable
                
                $
                251,712
                
                $
                236,360Customer
                    deposits (note 7)
                
                
                5,533,571
                
                
                4,994,842Short-term
                    loans - related parties (note 6)
                
                
                845,257
                
                
                309,975Accrued
                    interest - short-term loans, related parties (note 6)
                
                
                172,122
                
                
                151,446Other
                    accruals
                
                
                139,282
                
                
                179,470Total
                    Current Liabilities
                
                
                6,941,944
                
                
                5,872,093Minority
                    interest in subsidiary
                
                
                936,947
                
                
                972,996Stockholders’
                    Equity:Preferred
                    stock: par value $.0001, 20,000,000 shares authorized;none
                    issued and outstanding
                
                
                -
                
                
                -Common
                    stock: par value $.0001; 80,000,000 shares authorized;25,015,000
                    shares issued and outstanding
                
                
                2,502
                
                
                2,500Additional
                    paid-in capital
                
                
                3,131,200
                
                
                3,130,452Retained
                    earnings
                
                
                443,939
                
                
                588,884Accumulated
                    other comprehensive income
                
                
                835,209
                
                
                502,940Total
                    stockholders’ equity
                
                
                4,412,850
                
                
                4,224,776Total
                    Liabilities and Stockholders’ Equity
                
                $
                12,291,741
                
                $
                11,069,865
  See
        accompanying notes to unaudited consolidated financial
        statements
  -3-
  DAHUA,
        INC.
 Consolidated
        Statements of Operations and Comprehensive Income (Loss)
 (Unaudited)
 Three
                    months ended
                
                Six
                    months endedJune
                    30,
                
                June
                    30,2008
                
                2007
                
                2008
                
                2007RevenuesSales
                    revenues
                
                $
                -
                
                $
                2,500,012
                
                $
                -
                
                $
                5,627,934Cost
                    of goods sold
                
                
                -
                
                
                2,086,135
                
                
                -
                
                
                4,197,698Gross
                    Profit
                
                
                -
                
                
                413,877
                
                
                -
                
                
                1,430,236ExpensesAdvertising
                
                
                -
                
                
                141,469
                
                
                -
                
                
                360,667Depreciation
                
                
                27,494
                
                
                16,237
                
                
                53,708
                
                
                31,392Payroll
                    expense
                
                
                13,724
                
                
                142,662
                
                
                30,179
                
                
                229,302Other
                    general and administrative
                
                
                95,983
                
                
                294,139
                
                
                146,621
                
                
                757,367Total
                    expenses
                
                
                137,201
                
                
                594,507
                
                
                230,508
                
                
                1,378,728Net
                    income (loss) from operations
                
                
                (137,201
                )
                
                (180,630
                )
                
                (230,508
                )
                
                51,508Other
                    Income (expense)Interest
                    expense
                
                
                -
                
                
                (27,963
                )
                
                -
                
                
                (59,051
                )Other
                    revenues
                
                
                -
                
                
                2
                
                
                -
                
                
                436Interest
                    income
                
                
                15,646
                
                
                4,459
                
                
                49,514
                
                
                7,870Total
                    other income (expense)
                
                
                15,646
                
                
                (23,502
                )
                
                49,514
                
                
                (50,745
                )Net
                    income (loss) before taxes and minority interest
                
                
                (121,555
                )
                
                (204,132
                )
                
                (180,994
                )
                
                763Provision
                    for income taxes
                
                
                -
                
                
                67,363
                
                
                -
                
                
                (252
                )Net
                    income (loss) before minority interest
                
                
                (121,555
                )
                
                (136,769
                )
                
                (180,394
                )
                
                511Minority
                    interest in subsidiary income (loss)
                
                
                (24,161
                )
                
                (27,354
                )
                
                (36,049
                )
                
                102Net
                    income (loss)
                
                $
                (97,394
                )
                $
                (109,415
                )
                $
                (144,945
                )
                $
                409Foreign
                    currency translation adjustment
                
                $
                122,006
                
                $
                61,408
                
                $
                332,269
                
                $
                97,444Comprehensive
                    income (loss)
                
                $
                24,612
                
                $
                (48,007
                )
                $
                187,324
                
                $
                97,853Basic
                    and diluted income (loss) per share
                
                $
                (0.00
                )
                $
                (0.00
                )
                $
                (0.01
                )
                $
                0.00Weighted
                    average common shares outstanding
                
                
                25,015,000
                
                
                25,000,000
                
                
                25,014,917
                
                
                25,000,000
 
 See
        accompanying notes to unaudited consolidated financial statements
  -4-
 
 DAHUA,
        INC.
 Consolidated
        Statements of Cash Flows
 (Unaudited)
 Six
                    months ended June 30,2008
                
                2007Cash
                    Flows from Operating Activities:Net
                    income
                
                $
                (144,945
                )
                $
                409Adjustments
                    to reconcile net income to net cashprovided
                    by (used in) operating activities:Depreciation
                
                
                53,708
                
                
                31,392Minority
                    interest
                
                
                (36,049
                )
                
                102Stock
                    issued for services
                
                
                750
                
                
                -Loss
                    from disposition of equipment
                
                
                -
                
                
                417Changes
                    in operating assets and liabilities:Inventory
                
                
                (139,107
                )
                
                (494,894
                )Tax
                    prepaid
                
                
                (178,295
                )
                
                (481,794
                )Accounts
                    payable
                
                
                -
                
                
                (279,278
                )Customer
                    deposits
                
                
                208,159
                
                
                2,702,814Accrued
                    interest
                
                
                10,528
                
                
                59,051Other
                    accruals
                
                
                (50,356
                )
                
                35,878Net
                    cash provided by operating activities
                
                
                (275,607
                )
                
                1,574,097Cash
                    Flows from Investing Activities:Purchase
                    of equipment
                
                
                (16,709
                )
                
                (32,447
                )Proceeds
                    from disposition of equipment
                
                
                -
                
                
                4,275Construction
                    in progress
                
                
                (578,873
                )
                
                (270,476
                )Prepaid
                    construction in progress
                
                
                (120,182
                )
                
                -Other
                    receivable
                
                
                3,356
                
                
                (16,952
                )Net
                    cash used in investing activities
                
                
                (712,408
                )
                
                (315,600
                )Cash
                    Flows from Financing Activities:Payments
                    made on related party loans
                
                
                -
                
                
                (2,190,680
                )Net
                    proceeds from loanspayable-related
                    parties
                
                
                500,356
                
                
                -Net
                    cash used in financing activities
                
                
                500,356
                
                
                (2,190,680
                )Effect
                    of rate changes on cash
                
                
                108,573
                
                
                45,143Decrease
                    in cash and cash equivalents
                
                
                (420,954
                )
                
                (887,040
                )Cash
                    and cash equivalents, beginning of period
                
                
                1,893,626
                
                
                2,338,835Cash
                    and cash equivalents, end of period
                
                $
                1,514,540
                
                $
                1,451,795Supplemental
                    disclosure of cash flow information:Income
                    taxes paid in cash
                
                $
                -
                
                $
                317,498Sales
                    taxes paid in cash
                
                $
                -
                
                $
                517,128Non-cash
                    activitiesStock
                    issued for services
                
                $
                750
                
                $
                -
  See
        accompanying notes to unaudited consolidated financial statements
 
 -5-
 DAHUA
        INC.
 
 NOTES
        TO
        UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 **1.
        Nature of operations**
 
 Dahua,
        Inc. (“Dahua”) was incorporated on March 8, 2002 in the State of Delaware as
        Norton Industries Corp. (“Norton”). The name was changed to Dahua, Inc. on
        February 7, 2005 as result of a reverse acquisition in which Norton acquired
        all
        capital shares of Bauer Invest Inc. ("Bauer"). Incident to the reverse
        acquisition the Company paid $100,000 to the previous shareholders of Norton
        for
        shares of stock that were canceled. The acquisition was accounted for as
        a
        reverse merger, as the post acquisition owners and control persons of Dahua
        are
        substantially the same as the pre acquisition owners and control persons
        of
        Bauer and the $100,000 paid to purchase and cancel the previous shares was
        treated as an adjustment to paid in capital.
 
 Bauer
        Invest Inc. was incorporated on December 10, 2003, under the laws of the
        Territory of the British Virgin Islands (“BVI”). Bauer has had no operations
        other than the acquisition of 80% of Beijing Dahua Real Estate Development,
        Ltd.
        (“Subsidiary”) on May 25, 2004. The Subsidiary is a corporation established on
        September 24, 2001 in the People’s Republic of China (“PRC”). The acquisition
        was accounted for as a reverse merger, as the post acquisition owners and
        control persons of Bauer are substantially the same as the pre- acquisition
        owners and control persons of the subsidiary. These financial statements
        are
        essentially those of the Subsidiary with a recapitalization to show the effects
        due to the reverse mergers. The consolidated entity is hereafter referred
        to as
‘the Company’.
 
 The
        Company engages in the development of real estate and the sale of commodity
        housing. The Company has completed all of the construction on its current
        development project and all of the houses are sold or available for
        sale.
 
 **2.
        Basis of Presentation**
 
 The
        consolidated financial statements include the accounts of Dahua, Inc., Bauer
        Invest, Inc., Beijing Dahua Real Estate Development Ltd and Zhuolu Dahua Real
        Estate Development Ltd. All inter-company accounts and transactions have
        been
        eliminated in consolidation. The Company records minority interest expense,
        which reflects the 20% portion of the earnings of Beijing Dahua Real Estate
        Development, Ltd. allocable to holders of the minority interest.
 
 The
        accompanying consolidated financial statements are prepared in accordance
        with
        accounting principles generally accepted in the United States of America
        (“US
        GAAP”). This basis differs from that used in the statutory accounts of the
        Company, which were prepared in accordance with the accounting principles
        and
        relevant financial regulations applicable to enterprises in the PRC. All
        necessary adjustments have been made to present the financial statements
        in
        accordance with US GAAP.
 
 **3.
        Summary of Significant Accounting Policies**
 
 Economic
        and Political Risks
 
 -6-
 The
        Company faces a number of risks and challenges as a result of having primary
        operations and markets in the PRC. Changing political climates in the PRC
        could
        have a significant effect on the Company’s business.
 
 Cash
        and Cash Equivalents
 
 For
        purposes of the statements of cash flows, cash and cash equivalents includes
        cash on hand and demand deposits held by banks. Deposits held in financial
        institutions in the PRC are not insured by any government entity or
        agency.
 
 Trade
        Accounts Receivable
 
 Trade
        accounts receivable are recognized and carried at original invoice amount
        less
        an allowance for any uncollectible amounts. An estimate for doubtful accounts
        is
        made when collection of the full amount becomes questionable. The Company
        had no
        trade accounts receivable at June 30, 2008.
 
 Inventories
 
 Inventories
        consist primarily of land acquisition and development costs, engineering,
        infrastructure, capitalized interest, and construction costs. The inventories
        are valued at cost based on the level of completion using the weighted-average
        method.
 
 Property,
        Plant, and Equipment
 
 Property,
        plant, and equipment are carried at cost less accumulated depreciation, which
        is
        computed using the straight-line method over the useful lives of the assets.
        Upon disposal of assets, the cost and related accumulated depreciation are
        removed from the accounts and any gain or loss is included in income. Property
        and equipment are depreciated over their estimated useful lives as
        follows:
  Computer
                  equipment
              
              
              3
                  yearsOffice
                  equipment
              
              
              7
                  yearsVehicles
              
              
              7
                  years
  Depreciation
        expense for the six-month periods ended June 30, 2008 and 2007 was $53,708
        and
        $31,392, respectively.
 
 Long-term
        assets of the Company are reviewed annually to assess whether the carrying
        value
        has become impaired, according to the guidelines established in Statement
        of
        Accounting Standards (SFAS) No. 144, *“Accounting
        for the Impairment or Disposal of Long-Lived Assets.”* The
        Company also evaluates the periods of amortization to determine whether
        subsequent events and circumstances warrant revised estimates of useful lives.
        No impairment of assets was recorded in the periods reported.
 
 Revenue
        Recognition
 
 The
        Company recognizes revenue on the sale of a house when the consummation of
        a
        sale is evidenced by: 1) a contractual arrangement that is binding to both
        parties; 2) the exchange of all consideration (i.e. the seller has transferred
        to the buyer the usual risks and rewards of ownership and the buyer has made
        payment in full to the seller); 3) the arrangement of all permanent financing
        for which the seller is responsible and; 4) the performance of all conditions
        precedent to closing. No revenue is recognized when the Company’s receivable is
        subject to future subordination, as is the case when the Company guarantees
        a
        bank loan for the period prior to the certification of title
        transfer.
 
 -7-
 Advertising
        Expenses
 
 Advertising
        costs are expensed as incurred. Advertising expense amounted to $0 and $360,667
        for the six-month periods ended June 30, 2008 and 2007.
 
 Foreign
        Currency and Comprehensive Income
 
 The
        accompanying consolidated financial statements are presented in United States
        (“US”) dollars. The functional currency is the Yuan Renminbi (“RMB”) of the PRC.
        The consolidated financial statements are translated into US dollars from
        RMB at
        period-end exchange rates for assets and liabilities, and weighted average
        exchange rates for revenues and expenses. Capital accounts are translated
        at
        their historical exchange rates when the capital transactions
        occurred.
 
 During
        July 2005, China changed its foreign currency exchange policy from a fixed
        RMB/US dollar exchange rate into a flexible rate under the control of China’s
        government. We used the Closing Rate Method in translation of the financial
        statements.
 
 RMB
        is
        not freely convertible into the currency of other nations. All such exchange
        transactions must take place through authorized institutions. There is no
        guarantee the RMB amounts could have been, or could be, converted into US
        dollars at rates used in translation.
 
 Taxes
 
 Deferred
        tax assets and liabilities are recognized for the future tax consequences
        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 apply
        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 operations 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.
        Nearly all differences in tax bases and financial statement carrying values
        are
        permanent differences. Therefore, the Company has recorded no deferred tax
        assets or liabilities.
 
 Estimates
 
 The
        preparation of consolidated financial statements in conformity with generally
        accepted accounting principles requires management to make estimates and
        assumptions that affect the reported amounts of assets and liabilities and
        disclosures of contingent assets and liabilities at the date of the consolidated
        financial statements and the reported amounts of income and expenses during
        the
        reporting period. Actual results could differ from those estimates.
 
 Earnings
        Per Share
 
 Basic
        earnings per common share ("EPS") are calculated by dividing net income by
        the
        weighted average number of common shares outstanding during the year. Diluted
        EPS is calculated by adjusting the weighted average outstanding shares, assuming
        conversion of all potentially dilutive securities, such as stock options
        and
        warrants. The numerators and denominators used in the computations of basic
        and
        diluted EPS are presented in the following table:
 
 -8-
 For
                    the six months endedJune
                    30, 2008
                
                June
                    30, 2007NUMERATOR
                    FOR BASIC AND DILUTED EPSNet
                    income to common stockholders
                
                $
                (144,945
                )
                $
                409DENOMINATORS
                    FOR BASIC AND DILUTED EPSWeighted
                    average shares of common stock outstanding
                
                
                25,014,917
                
                
                25,000,000Add:
                    dilutive equity securities outstanding
                
                
                -
                
                
                -Denominator
                    for diluted EPS
                
                
                25,014,917
                
                
                25,000,000EPS-Basic
                
                $
                (0.01
                )
                $
                0.00EPS-Diluted
                
                $
                (0.01
                )
                $
                0.00
 
 The
        Company had no potentially dilutive securities outstanding at June 30, 2008
        and
        2007.
 
 **4.
        Inventory**
 
 Inventory
        represents completed houses available for sale at June 30, 2008. During 2005,
        the Company completed all of its housing construction. As of June 30, 2008,
        60
        units were sold, 13 units were reserved with clients’ deposits, and 2 units were
        available for sale.
 
 **5.
        Construction in progress**
 
 Construction
        in progress represents the cost of the new building, which the Company is
        constructing. The new building will have four stories. The Company plans
        to use
        two stories for its office and administration, and give out the other two
        stories (lease free) to the home owner association. The home owner association
        will hire a third party to collect usage fee and maintain the facilities
        at
        their cost. As of June 30, 2008, the balance of construction in progress
        was
        $1,436,124.
 
 **6.
        Related Party Transactions**
 
 Short-term
        loans due to related parties had balances of $1,017,379 and $1,094,518
        (including accrued interest) at June 30, 2008 and 2007, respectively. The
        loans
        carry an annual interest rate of 6 percent and are due on demand. Interest
        accrued on the loans was $10,839 and $59,051 for
        the
        six months period-ended June
        30 ,
        2008
        and 2007 .
        The
        interest amounts, which were accrued for
        the
        six months periods ended June
        30 ,
        2008 ,
        were
        capitalized as construction in progress.
 
 -9-
 **7.
        Customer deposits**
 
 Customer
        deposits consist of down payments received on sales contracts for houses.
        When
        all of the conditions set forth in the Company’s revenue recognition policy are
        met, the Company will recognize the down payments as revenue. The aggregate
        of
        the customers’ deposits at June 30, 2008 was $5,533,571. Of the 13 units
        reserved, 3 unit’s deposits are money received from bank arrangements (see note
        8) in the amounts of $998,673. Accordingly, the bank has liens against these
        3
        units.
 
 **8** **.
        Off-Balance Sheet Arrangements**
 
 The
        Company entered into an agreement with two banks (the “Banks”) that extended
        mortgage loans to its home buyers, where the Company agrees to provide a
        certain
        limited guarantee, which covers the risk before the conveyance of title upon
        closing. Upon initiating the loan on behalf of the buyer for the down payment,
        the Banks have withheld a percentage ranging from 5% to 20% of the loan and
        deposited such funds into a segregated account in each bank. At June 30,
        2008,
        the balance of this separate account was $724,029. Since the Company does
        not
        recognize revenue when its receivables are subject to future subordination,
        the
        entire amount that could become payable to the Banks under the limited guarantee
        is recorded as a liability on the balance sheet and is included in customer
        deposits, as is explained in note 6.
 
 **9.
        Tax**
 
 The
        Company made no provision for sales tax and income tax for the six months
        periods ended June 30, 2008 for the reason that no sales revenue was recognized
        for the six months ended June 30, 2008. The houses that the company reserved
        didn’t meet the requirement of revenue recognition.
 
 As
        of
        June 30, 2008, the Company has a prepaid tax of $433,412.
 
 **10** **.
        Stock**
 
 The
        Company is authorized to issue up to 80,000,000 shares of common stock, $.0001
        par value, and 20,000,000 shares of preferred stock, $.0001 par value per
        share.
        For the help that Pacific Services provided in the company’s financial reporting
        in the United States, the company issued 15,000 shares of the Company’s Common
        Stock, valued at $0.05 to Pacific Services Inc in January 2008 for a total
        non-cash consideration of $750. As of June 30, 2008, there were 25,015,000
        shares of common stock issued and outstanding, and no shares of preferred
        stock
        were issued and outstanding.
 
 **11.
        Contingencies**
 
 The
        Company has not, historically, carried any property or casualty insurance.
        No
        amounts have been accrued for any liability that could arise from the lack
        of
        insurance. Management feels the chances of such an obligation arising are
        remote.
 
 Deposits
        in banks in the PRC are not insured by any government entity or agency, and
        are
        consequently exposed to risk of loss. Management believes the probability
        of a
        bank failure, causing loss to the Company, is remote.
 
 -10-
 
 **12.
        Other receivables**
 
 Other
        receivables primarily represent loans due from outside parties. As of June
        30 ,
        2008,
        the balance of other receivable (including accrued interest) was $316,088.
        The
        loans due from outside parties carry an annual interest rate of 6 percent
        and
        are due within two years.
 
 **13.
        Recent Accounting Pronouncements**
 
 In
        March
        of 2008 the Financial Accounting Standards Board (FASB) issued Statement
        of
        Financial Accounting Standards (SFAS) No. 161, “ *Disclosures
        about Derivative Instruments and Hedging Activities—an amendment of FASB
        Statement No. 133* ,
        “ *Accounting
        for Derivatives and Hedging Activities* .”
         SFAS No. 161 has the same scope as Statement No. 133 but requires enhanced
        disclosures about (a) how and why an entity uses derivative instruments,
        (b) how
        derivative instruments and related hedged items are accounted for under
        Statement No. 133 and its related interpretations, and (c) how derivative
        instruments and related hedged items affect an entity’s financial position,
        financial performance, and cash flows.  SFAS No. 161 is effective for
        financial statements issued for fiscal years and interim periods beginning
        after
        November 15, 2008, with early application encouraged.  The statement
        encourages, but does not require, comparative disclosures for earlier periods
        at
        initial adoption.  SFAS No. 161 has no effect on the Company’s financial
        position, statements of operations, or cash flows at this time.
 
 I n
        December 2007, the Financial Accounting Standards Board ("FASB") issued FASB
        Statements No.141 (revised 2007), "Business Combinations" ("FAS 141(R)")
        and No.
        160, "Noncontrolling Interests in Consolidated Financial Statements" ("FAS
        160"). These standards aim to improve, simplify, and converge internationally
        the accounting for business combinations and the reporting of noncontrolling
        interests in consolidated financial statements. The provisions of FAS 141
        (R)
        and FAS 160 are effective for the fiscal year beginning June 1, 2009. We
        are
        currently evaluating the provisions of FAS 141(R) and FAS 160.
 
 In
        December 2007, the FASB issued SFAS No. 141R, *“Business
        Combinations”* (“SFAS
        No. 141R”).  SFAS No. 141R amends SFAS 141 and provides revised guidance
        for recognizing and measuring identifiable assets and goodwill acquired,
        liabilities assumed, and any non-controlling interest in the acquiree.  It
        also provides disclosure requirements to enable users of the financial
        statements to evaluate the nature and financial effects of the business
        combination.  It is effective for fiscal years beginning on or after
        December 15, 2008 and will be applied prospectively.  SFAS No. 141R has no
        effect on the Company’s financial reporting.
 
 Item
        2
        MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 
 The
        discussion in this quarterly report on Form 10-Q contains forward-looking
        statements. Such statements are based upon beliefs of management, as well
        as
        assumptions made by and information currently available to management of
        the
        Company as of the date of this report. These forward-looking statements can
        be
        identified by their use of such verbs as "expect", "anticipate", "believe"
        or
        similar verbs or conjugations of such verbs. If any of these assumptions
        prove
        incorrect or should unanticipated circumstances arise, the actual results
        of the
        Company could materially differ from those anticipated by such forward-looking
        statements. The Company assumes no obligation to update any such forward-looking
        statements.
 
 -11-
 Overview
 
 We,
        through our subsidiary Beijing Dahua Real Estate Development Ltd., are engaged
        in the business of development, construction and sale of luxury residential
        single-family homes in Beijing, China. In July 2003, we began to develop
        our
        first real estate project, Dahua Garden (the "First Phase"), which consists
        of
        76 luxury residential units, all of which are single-family houses ranging
        from
        approximately 2,000 to 5,000 square feet, each with 3 - 4 bedrooms. The
        construction site is located at the northern skirt of Beijing, China. The
        construction began in July 2003 and was completed in December 2005. As of
        June
        30, 2008, out of 76 luxury residential units, 60 units have been sold, 13
        units
        were reserved with clients' deposits, and 2 units were available for sale.
 
 We
        are
        currently in the process of applying with Beijing municipal and Changping
        district government agencies for the requisite licenses, permits, and approvals
        in order to start the Second Phase of Dahua Garden. But, in August 2006,
        the
        Chinese government issued a number of new rules and regulations for real
        estate
        developers, like us, in an attempt to push down rising house prices by cutting
        down luxury single family house constructions and favoring construction of
        apartment buildings. Under the government’s new policy, (i) no single family
        houses can be built, if the construction has not started, without special
        construction permits; (ii) All permits previously issued have to be re-reviewed
        and re-approved; and (iii) the land previously acquired for luxury housing
        construction has to be revalued and sold to the people who offer the most
        money
        for the land in an auction. Because of those new government policies, we
        have
        incurred a long delay for obtaining the consents and approvals to commence
        our
        construction for the second phase of Dahua Garden. On May 9, 2007, we contacted
        a Beijing Municipal Government agency, who is responsible for the issuance
        of
        construction permits, for our construction approval time frame guidance.
        We were
        told two weeks later that our construction permit is very much likely to
        be
        issued for two reasons: (1) We have completed our First Phase of Dahua Garden;
        and (2) We have acquired for this land for almost ten (10) years. It is expected
        that we may obtain our construction approvals by the middle of 2008. While
        this
        process is now broken off for the Olympic Games which is going to be held
        in
        Beijing in August 8, 2008. We are told that the process will be restarted
        up
        after the Olympic Games. However, there is no assurance that we will obtain
        those consents and approvals from the government. If no consents and approvals
        are obtained, we may have to cease our Second Phase of single luxury family
        house operations, and change our business plan to build apartment
        buildings.
 
 We,
        through our subsidiary Zhuolu Dahua Real Estate Development Ltd., are engage
        in
        the business of development, construction and sale of luxury residential
        single-family homes in Zhuolu county, Hebei province which is about 140
        kilometers faraway from Beijing. The first phase will consist of 246 luxury
        residential units, all of which are single-family houses ranging from
        approximately 2,000 to 5,000 square feet, each with 3 - 4 bedrooms. We are
        now
        in the process of getting the permits needed to begin the
        construction.
 
 Results
        of Operations
 
 For
        the Three Months Ended June 30, 2008 and 2007
 
 Revenues
 
 We
        began
        our First Phase of Dahua Garden construction, which consists of 76 luxury
        residential units, in July 2003. The construction was completed in December
        2005. For the three months ended June 30, 2008, no sales revenue was recognized
        in this quarter. The following table sets forth certain information about
        our
        sales of housing units:
 
 -12-
 Cumulative
                    Balance as ofJune
                    30, 2008
                
                March
                    31, 2008
                
                December
                    31, 2007Units
                    sold
                
                
                60
                
                
                60
                
                
                60Units
                    reserved with deposits
                
                
                13
                
                
                13
                
                
                13Units
                    available for sales
                
                
                2
                
                
                2
                
                
                3Units
                    kept by the company
                
                
                1
                
                
                1
                
                
                -Total
                
                
                76
                
                
                76
                
                
                76
  Six
                    months
                
                Three
                    months
                
                Three
                    monthsended
                
                ended
                
                endedJune
                    30, 2008
                
                June
                    30, 2008
                
                June
                    30, 2007Houses
                    sold
                
                
                -
                
                
                -
                
                
                6Houses
                    reserved
                
                
                -
                
                
                -
                
                
                (3
                )
 
 For
        the
        three months ended June 30, 2008 and 2007, we recognized sales revenues of
        $0
        and $2,500,012 from the sale of our housing units, respectively
 
 Cost
        of
        Goods Sold
 
 Cost
        of
        goods sold consists primarily of land acquisition and development costs,
        engineering, infrastructure, capitalized interest, and construction costs.
        For
        the three months ended June 30, 2008 and 2007, our cost of goods sold was
        $0 and
        $2,086,135, respectively
 
 Operating
        Expenses
 
 For
        the
        three months ended June 30, 2008, our operating expenses were $137,201, a
        decrease of $457,306, or 76.9%, as compared to $594,507 for the same period
        of
        prior year mainly due to the fundamental completion of the construction and
        the
        sales.
 
 Net
        Income
 
 For
        the
        three months ended June 30, 2008, we had a net loss of $97,394, or $0.00
        per
        share, as compared with a net loss of $109,415, or $0.00 per share, for the
        same
        period of the prior year.
 
 For
        the Six Months Ended June 30, 2008 and 2007
 
 Revenues
 
 -13-
 We
        began
        our First Phase of Dahua Garden construction, which consists of 76 luxury
        residential units, in July 2003. The construction was completed in December
        2005. For the six months ended June 30, 2008, no sales revenue was recognized
        by
        the company . For
        the
        same period in 2007, we recognized sales revenues of $5,627,934.
 
 Cost
        of
        Goods Sold
 
 Cost
        of
        goods sold consists primarily of land acquisition and development costs,
        engineering, infrastructure, capitalized interest, and construction costs.
        For
        the six months ended June 30, 2008 and 2007, our cost of goods sold were
        $0 and
        $4,197,698 respectively. As compared to 2007, because no sales revenue was
        recognized in 2008, no cost of goods sold was recognized
        accordingly.
 
 Operating
        Expenses
 
 During
        the six months ended June 30, 2008, our operating expenses were $230,508
        as
        compared to $1,378,728 during the six-month period in 2007, a decrease of
        $1,148,220 or 83.2%, mainly due to the fundamental completion of the
        construction and the sales.
 
 Net
        Income
 
 For
        the
        six months ended June 30, 2008, we had a net loss of $144,945, or $0.01 per
        share, as compared with a net income of $409 or $0.00 per share, for the
        same
        period of the prior year.
 
 Liquidity
        and Capital Resources
 
 Since
        inception, our operations have been primarily funded by equity capital,
        unsecured short-term loans from Dahua Project Management Group ("Dahua Group"),
        our affiliate, and customer deposits that we received from our pre-sale of
        housing units.
 
 After
        receiving the Residential Housing Pre-sale Permit issued by the government,
        we
        are permitted to sell the residential units to be built to the public, which
        is
        common practice in China. Upon execution of a binding purchase contract between
        the developer and a homebuyer, a deposit and installment payments are required
        to be made to the developer, which we use to construct our residential housing
        units. As of June 30, 2008, our customer deposit balance was
        $5,533,571.
 
 We
        also
        borrow from time to time based on a verbal line of credit agreement from
        Dahua
        Group, our affiliate. The funds borrowed are unsecured and there is no upper
        limit on the amount of money that we can borrow as long as there are funds
        available and we need it for our operations. The money we borrow under this
        arrangement bears interest at an annual rate of 6%, repayable within 30 days
        upon demand by the lender. As of June 30, 2008, the short-term loans due
        to
        related parties had a balance of $845,257, and accrued interest of
        $172,122.
 
 As
        of
        June 30, 2008, we had cash and cash equivalents balance of $1,514,540. For
        the
        six months ended June 30, 2008, our operating activities used $275,607 of
        net
        cash. During the six months ended June 30, 2008, our investing activities
        used
        $712,408 of net cash, mainly for the cost of the new building, which we are
        constructing and the company long-term investment on the subsidiary company.
        For
        the same period, the financing activities provided net cash of $500,356 from
        net
        payments on loans payable from related parties.
  -14-
 Our
        First
        Phase of Dahua Garden was completed in December 2005. We are currently applying
        with Beijing municipal and Changping district governmental agencies for all
        the
        requisite licenses, permits, and approvals to start our Second Phase of Dahua
        Garden. It is estimated that approximately $60.5 million is needed to complete
        the Second Phase. In addition to customer deposits, and short-term loans
        (line
        of credit) from Dahua Group, the proceeds generated from sale of the First
        Phase
        will also be used to finance the Second Phase development. There are no material
        commitments for capital expenditures.
 
 While
        there can be no assurance that we will have sufficient funds over the next
        twelve months, we believe that funds generated from the sale of our First
        Phase
        of Dahua Garden housing units, purchaser deposits from pre-sale contracts,
        and
        the line of credit provided by our affiliate, Dahua Group, will be adequate
        to
        meet our anticipated operating expenses, capital expenditure and debt
        obligations for at least the next twelve months. Nevertheless, our continuing
        operating and investing activities may require us to obtain additional sources
        of financing. In that case, we may seek financing from institutional investors,
        banks, or other sources of financing. There can be no assurance that any
        necessary additional financing will be available to us on commercially
        reasonable terms, if at all.
 
 Off-Balance
        Sheet Arrangements
 
 We
        entered into an agreement with two banks (the “Banks”) that extended mortgage
        loans to our home buyers, where we agree to provide a certain limited guarantee,
        which covers the risk before the conveyance of title upon closing. Upon
        initiating the loan on behalf of the buyer for the down payment, the Banks
        have
        withheld a percentage ranging from 5% to 20% of the loan and deposited such
        funds into a segregated account in each bank. At June 30, 2008, the balance
        of
        this separate account was $724,029. Since the Company does not recognize revenue
        when its receivables are subject to future subordination, the entire amount
        that
        could become payable to the banks under the limited guarantee is recorded
        as a
        liability on the balance sheet and is included in customer
        deposits.
 
 Item
        3.
        QUALITATIVE AND QUANTITIVE DOSCLOSURES ABOUT MARKET RISK
 
 The
        Company is subject to the following market risks, including but not limit
        to:
 
 General
        Real Estate Risk
 
 (i)  The
        real
        estate development industry in general, and the residential luxury real estate
        development industry in particular, is a high risk industry, subject to changes
        in general economic conditions, fluctuating interest rates, and changing
        demand
        for the types of developments being considered. Volatility in local and regional
        land use demands, as well as changing supply and demand for the specific
        uses
        for which the real property is being developed, are also factors in assessing
        the relative risks of the business. The demand for residential real estate
        development is particularly sensitive to changing interest rates and shifting
        demographics. Both of these factors affecting the demand for residential
        housing
        are highly unpredictable over both the short-and long-term. If market conditions
        change dramatically and unfavorably to us, we may go out of
        business.
 
 (ii) We
        need
        permits, licenses or approvals from government authorities to begin our
        construction of the second phase project. If we fail to obtain all required
        licenses, permits, or approvals, we may have to cease our
        operations.
 
 -15-
 (iii) Recent
        PRC regulations relating to cutting down luxury single family house
        constructions may limit our ability to implement our business plan. If no
        consents and approvals are obtained, we may have to cease our second phase
        of
        single luxury family house operations, and change our business plan to build
        apartment buildings.
 
 Risk
        Relating to Property Sales
 
 The
        Company may not be able to sell a property at a particular time for our full
        value, particularly in a poor market.
 
 Foreign
        Currency Exchange Rate Risk
 
 The
        Company is doing all our business in P.R. China. All the revenue and profit
        is
        denominated in RMB. When RMB depreciates, it may adversely affect the company's
        financial performance.
 
 Item
        4T.
        CONTROLS AND PROCEDURES
 
 *(i)
        Evaluation of Disclosure Controls and Procedures*
 
 Our
        management evaluated, with the participation and under the supervision of
        our
        Chief Executive Officer and Chief Financial Officer, the effectiveness of
        our
        disclosure controls and procedures as of the end of the period covered by
        this
        Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive
        Officer and our Chief Financial Officer concluded that our disclosure controls
        and procedures are effective to ensure that information we are required to
        disclose in reports that we file or submit under the Securities Exchange
        Act of
        1934, as amended, is accumulated and communicated to our management, including
        our Chief Executive Officer and our Chief Financial Officer, as appropriate
        to
        allow timely decisions regarding required disclosure and that such information
        is recorded, processed, summarized and reported within the time periods
        specified in Securities and Exchange Commission rules and forms.
 
 *(ii)
        Changes in Internal Control Over Financial Reporting*
 
 There
        has
        been no change in our internal control over financial reporting that occurred
        during our last fiscal quarter that has materially affected or is reasonably
        likely to materially affect our internal control over financial reporting,
        except as follows:
 
 On
        December 6, 2006, we identified two material weaknesses in our internal control
        over financial reporting related to construction interest accounting. The
        amount
        of $51,220 interest expense was incorrectly shown as capitalized construction
        interest. These material weaknesses resulted in the restatements of our
        previously reported financial statements for the year ended December 31,
        2005
        and for the quarters ended March 31, June 30, and September 30, 2006. The
        restatement resulted in (i) an increase in net loss of $40,736 for the quarter
        ended March 31, 2006; (ii) a decrease in total assets of $50,920; and (iii)
        a
        decrease in stockholders' equity of $40,736. The restatement has no impact
        on
        the statement of cash flows.
 
 In
        connection with this restatement, management assessed the effectiveness of
        the
        Company’s internal control over financial reporting, and identified the
        following deficiencies:
 
 -16-
 (a)
        We
        lacked adequate resources with sufficient technical expertise to properly
        account for construction in accordance with U.S. general accepted according
        principles; and
  (b)
        We
        lacked consistent and effective review and supervision to ensure that the
        review
        of accounts entries supporting our construction interest provision was conducted
        in sufficient detail by someone other than the preparer of such
        entries.
 
 Over
        the
        past six months, we have taken steps to strengthen our ability to identify
        and
        resolve GAAP construction accounting issues as they arise. Specifically,
        we have
        implemented new controls and procedures to substantially mitigate the risks
        associated with the material weaknesses identified above:
 
 (1)
        We
        provided additional training to our accounting staff on the requirements
        of the
        U.S. generally accepted accounting principles to increase their familiarity
        with
        those standards, and ensure their proper application of the U.S. GAAP to
        various
        transactions, including construction accounting, and other financial statements
        matters;
 
 (2)
        We
        designated an experienced individual who is expected to provide additional
        review over our presentation and disclosure in financial statements and to
        provide further technical accounting expertise in applying U.S. generally
        accepted accounting principles; and
 
 (3)
        We
        adopted procedures to conduct additional detailed transaction review and
        control
        activities to confirm that our financial statements for each period, present
        fairly, in all material respects, our financial positions, results of operations
        and cash flows for the periods presented in conformity with U.S. generally
        accepted accounting principles.
 
 (4)
        We
        adopted procedures to solicit the services of the outside consulting firm
        to
        assist in complex and non-routine accounting transactions.
 
 Our
        CEO
        and CFO do not expect that our internal controls and procedures will prevent
        all
        error and all fraud. Although our internal controls were designed to provide
        reasonable assurance of achieving their objectives, a control system, no
        matter
        how well conceived and operated, can provide only reasonable, not absolute,
        assurance that the objectives of the system are met. Further, the design
        of a
        control system must reflect the fact that there are resource constraints,
        and
        the benefits of controls must be considered relative to their costs. Because
        of
        the inherent limitations in all control systems, no evaluation of controls
        can
        provide absolute assurance that all control issues and instances of fraud,
        if
        any, have been detected. These inherent limitations include the realities
        that
        judgments in decision-making can be faulty and that breakdowns can occur
        because
        of simple error or mistake. Additionally, controls can be circumvented by
        the
        individual acts of some persons, by collusion of two or more people or by
        management override of the control. The design of any system of controls
        is also
        based partly on certain assumptions about the likelihood of future events,
        and
        there can be no assurance that any design will succeed in achieving its stated
        goals under all potential future conditions.
 
 
 PART
        II.
        OTHER INFORMATION
 
 Item
        1.
        Legal Information: None.
 
 -17-
 Item
        1A.
        Risk Factors :
 
 Investing
        in shares of our common stock involves a high degree of risk. You should
        carefully consider the following risk factors, in addition to the other
        information set forth in this report, before you purchase these shares. The
        risks and uncertainties described below are those we have identified as
        material. If any of the events contemplated by the following discussion of
        risks
        should occur, our business, financial condition and results of operations
        may
        suffer. As a result, the trading price of our common stock could decline
        and you
        could lose part or all of your investment in our common stock.
 
  Risks
        Related to Our Business
  
 WE
        LACK
        AN OPERATING HISTORY UPON WHICH AN EVALUATION OF OUR FUTURE SUCCESS OR FAILURE
        CAN BE MADE.
 
 We
        were
        incorporated in March 2002 as a blank check company for the purpose of seeking
        to complete a merger or business acquisition. We conducted virtually no business
        until January 30, 2005, when we acquired Bauer Invest Ltd. Bauer is a holding
        company, which conducts its business through its 80% owned subsidiary Beijing
        Dahua Real Estate Development, Ltd., a private company operating in the People's
        Republic of China (“Dahua Real Estate”). Dahua Real Estate was incorporated on
        September 24, 2001, to engage in the development and sale of luxury
        single-family houses in Beijing, China. The acquisition of Bauer was accounted
        for as a recapitalization, rather than a business combination. Accordingly,
        the
        historical operations of Bauer and its subsidiaries were represented as our
        historical operations. Our limited operating history makes it difficult for
        you
        to evaluate our business and future prospects.
 
 WE
        WILL
        NEED ADDITIONAL FINANCING TO CARRY OUT OUR SECOND PHASE PROJECT. IF WE ARE
        UNABLE TO OBTAIN ADDITIONAL FINANCING, WE MAY HAVE TO DELAY THE IMPLEMENTATION
        OF OUR SECOND PHASE PROJECT, AND OUR ABILITY TO INCREASE REVENUE WILL BE
        MATERIALLY IMPAIRED.
 
 Since
        inception, we have been dependent on short-term loans and customer deposits
        to
        meet our cash requirements. As of December 31, 2005 we completed the
        construction of our First Phase of Dahua Garden project consisting of 76
        luxury
        single-family houses. Of 76 units, 60 houses were sold, 13 houses were reserved
        with clients’ deposits, 2 houses were available for sale and one unit was kept
        by the company. We are currently applying with Beijing municipal and Changping
        district governmental agencies for all the requisite licenses, permits, and
        approvals to start our Second Phase of Dahua Garden. To date we have not
        received any licenses, permits or approvals from governmental authorities
        to
        commence our Second Phase construction. We expect to obtain the licenses,
        permits and approvals by the end of 2008. It is estimated that we need
        approximately $60.5 million in order to complete our Second Phase project.
        We
        intend to use (i) our proceeds from sales of our First Phase housing units,
        (ii)
        customer deposits from our pre-sale of the housing units in the Second Phase,
        and (iii) short-term borrowings from Dahua Group, our affiliate, to finance
        our
        Second Phase of Dahua Garden. At present we do not have any arrangements
        for
        additional financing. If we are unable to obtain additional financing on
        terms
        acceptable to us, we may have to delay or curtail our Second Phase project,
        and
        our ability to increase revenue will be materially impaired.
 
 -18-
 IF
        WE
        RAISE ADDITIONAL CAPITAL THE VALUE OF YOUR INVESTMENT MAY DECREASE.
 
 If
        we
        need to raise additional capital to implement or continue operations, we
        will
        likely issue additional equity or convertible debt securities. If we issue
        equity or convertible debt securities, the net tangible book value per share
        may
        decrease, the percentage ownership of our current stockholders may be diluted
        and such equity securities may have rights, preferences or privileges senior
        to
        or more advantageous than our common stockholders.
 
 WE
        NEED
        PERMITS, LICENSES OR APPROVALS FROM GOVERNMENT AUTHORITIES TO BEGIN OUR
        CONSTRUCTION OF THE SECOND PHASE PROJECT. IF WE FAIL TO OBTAIN ALL REQUIRED
        LICENSES, PERMITS, OR APPROVALS, WE MAY HAVE TO CEASE OUR OPERATIONS.
 
 Before
        we
        can develop a property, we must obtain a variety of approvals from local
        and
        municipal governments with respect to such matters as zoning, density,
        subdivision, traffic considerations, site planning and environmental issues.
        Although there are currently no unfavorable rulings that would have a
        significant adverse effect on the development of our proposed Second Phase
        of
        Dahua Garden, there is no assurance that we will be able to obtain all required
        licenses, permits, or approvals from government authorities. If we fail to
        obtain all required licenses, permits, or approvals, we may have to cease
        our
        operations.
 
 RECENT
        PRC REGULATIONS RELATING TO CUTTING DOWN LUXURY SINGLE FAMILY HOUSE
        CONSTRUCTIONS MAY LIMIT OUR ABILITY TO IMPLEMENT OUR BUSINESS PLAN. IF NO
        CONSENTS AND APPROVALS ARE OBTAINED, WE MAY HAVE TO CEASE OUR SECOND PHASE
        OF
        SINGLE LUXURY FAMILY HOUSE OPERATIONS, AND CHANGE OUR BUSINESS PLAN TO BUILD
        APARTMENT BUILDINGS.
  In
        August
        2006, the Chinese government issued a series of rules and regulations in
        an
        attempt to push down rising house prices in China by cutting down luxury
        single
        family house constructions and supporting construction of apartment buildings.
        Under the government’s new policy, (i) no single family houses can be built, if
        the construction has not started, without special construction permits. All
        permits issued previously have to be re-reviewed and re-approved; and (2)
        the
        land previously acquired for luxury housing construction have to be revalued
        and
        sold to the people who offer the most money for the land. Because of those
        new
        government policies, we have incurred a long delay for obtaining the consents
        and approvals to commerce our construction for the second phase of Dahua
        Garden.
        In May 2007, we contacted a Beijing Municipal Government agency, who is
        responsible for the issuance of construction permits, for construction approval
        time frame guidance. We were told that our construction permit is likely
        to be
        issued for the following two reasons: (1) We have completed our first phase
        of
        Dahua Garden; and (2) We have acquired for this land for almost ten (10)
        years.
        We are expected that we can obtain our construction approvals by the middle
        of
        2008. While this process is now broken off for the Olympic Games which is
        going
        to be held in Beijing in August 8, 2008. We are told that the process will
        be
        restarted up after the Olympic Games. However, there is no assurance that
        we
        will obtain those consents and approvals from the government. If no consents
        and
        approvals are obtained, we may have to cease our second phase of single luxury
        family house operations, and change our business plan to build apartment
        buildings. As of the date of this report, we don’t have any current plan or
        arrangements for development of apartment buildings.
 
 -19-
 WE
        HAVE
        IDENTIFIED MATERIAL WEAKNESSES IN OUR INTERNAL CONTROL OVER FINANCIAL REPORTING,
        WHICH COULD CONTINUE TO IMPACT NEGATIVELY OUR ABILITY TO REPORT OUR RESULTS
        OF
        OPERATIONS AND FINANCIAL CONDITION ACCURATELY AND IN A TIMELY MANNER ***.***
 
 The
        Company has identified material weaknesses in our internal control over
        financial reporting as of December 31, 2006 and March 31, 2007 because of
        material weaknesses identified in management’s assessment of the effectiveness
        of such internal control as of that dates related to construction interest
        accounting. These material weaknesses have resulted in the restatements of
        our
        previously reported financial statements for the quarter ended March 31,
        2006.
        The Company has taken the necessary actions to remediate the material weakness
        identified. These material weaknesses, if not remediated or fail to remediate,
        could create an increased risk of misstatement of financial results, which,
        if
        material, may require future restatement thereof.  A failure to
        achieve and maintain effective internal controls over our financial reporting
        could result in the loss of investor confidence in the reliability of our
        financial statements, which in turn could harm our business and negatively
        impact the market value of our common stock. Moreover, we anticipate that
        we
        will incur considerable costs and devote significant management time and
        other
        resources to comply with Section 404 of the Sarbanes-Oxley Act and other
        requirements.
 
 WE
        ACT AS
        GENERAL CONTRACTOR ON OUR CONSTRUCTION PROJECTS, AND IF ANY OF OUR
        SUBCONTRACTORS SHOULD FAIL TO COMPLETE THEIR JOBS ON TIME, OUR BUSINESS COULD
        BE
        DISRUPTED.
 
 We
        act as
        general contractor on our construction projects. We hire unaffiliated
        subcontractors to do work for us. In the event that any of our subcontractors
        should fail to complete their jobs on time, our business could be disrupted,
        which will have an adverse effect on our results of operation and our financial
        condition.
 
 WE
        ARE
        VULNERABLE TO CONCENTRATION RISKS BECAUSE OUR OPERATIONS ARE EXCLUSIVELY
        IN THE
        BEIJING, CHINA MARKET.
 
 We
        operate our business in Beijing, China. All of our revenues will be derived
        from
        the sale of our luxury single-family houses in Beijing, China. Although some
        of
        our customers are from the neighboring areas in Beijing, we may not be able
        to
        generate adequate revenue if local business conditions in Beijing change
        adversely. These changes may include business downsizing, industry slowdowns,
        local oversupply or reduction in demand for real estate properties, and changes
        in local governmental policies. Operating exclusively in Beijing exposes
        us to
        greater economic risks than if we operated in several geographic regions.
        Any
        adverse changes in business conditions in Beijing, China, could adversely
        impact
        our financial condition, results of operations and cash flow.
 
 WE
        DEPEND
        ON KEY PERSONNEL FOR THE SUCCESS OF OUR BUSINESS. OUR BUSINESS MAY BE SEVERELY
        DISRUPTED IF WE LOSE THE SERVICES OF OUR CEO OR FAIL TO SUCCESSFULLY RECRUIT
        QUALIFIED MANAGERIAL PERSONNEL HAVING EXPERIENCE IN BUSINESS.
 
 Our
        success is heavily dependent upon the continued service of Yonglin Du, our
        chief
        executive officer. Mr. Du has valuable personal relationships with government
        agencies and executive officers in the industry. A good personal relationship
        is
        sometimes crucial for doing business in China. If Mr. Du is unable or unwilling
        to continue in his position, we may not be able to easily replace him. Loss
        of
        his services could delay our applications for construction permit and land
        acquisition, and our business may be severely disrupted. We do not maintain
        key-man insurance on the life of Mr. Du. In addition, in order to successfully
        implement and manage our business plan, we will be dependent upon, among
        other
        things, successfully recruiting qualified managerial personnel having experience
        in business. Competition for qualified individuals is intense. There can
        be no
        assurance that we will be able to retain existing employees or that we will
        be
        able to find, attract and retain qualified personnel on acceptable
        terms.
 
 -20-
 OUR
        OFFICERS AND DIRECTORS ARE SUBJECT TO CONFLICTS OF INTEREST, AND THERE IS
        A RISK
        THAT THEY MAY PLACE THEIR INTERESTS AHEAD OF YOURS.
 
 We
        believe that our officers and directors will be subject to conflicts of
        interest. The conflicts arise from their relationships with our affiliate.
        Yonglin Du, our chief executive officer, also serves as president and a director
        of Dahua Project Management Group Co. Ltd. (“Dahua Group”), a Beijing Municipal
        Government licensed construction project supervising business entity. Hua
        Meng,
        our chief financial officer, and Qinna Zeng, our corporate secretary, are
        also
        employed by Dahua Group. They may have conflicts of interest in allocating
        time,
        services, and functions between us and Dahua Group, in which any of them
        are or
        may become involved. Mr. Du anticipates devoting a minimum of twenty to
        thirty-two hours per week of his business hours, and each of Ms. Meng and
        Ms.
        Zeng fifteen to twenty hours of their business hours to our business activities.
        If and when the business operations increase and a more extensive time
        commitment is needed, they are prepared to devote more time to our affairs,
        in
        the event that becomes necessary.
 
 To
        ensure
        that potential conflicts of interest are avoided or declared to us and to
        comply
        with the requirements of the Sarbanes-Oxley Act of 2002, our Board of Directors,
        on January 30, 2005, adopted a Code of Business Conduct and Ethics, among
        other
        things, to reduce potential conflicts of interest. Conflicts of interest
        must,
        to the extent possible, be avoided, and any material transaction or relationship
        involving a potential conflict of interest must be reviewed and approved
        in
        advance by a majority of the board of directors, or, if required by law,
        a
        majority of disinterested stockholders. No personal loans will be made to
        executive officers and directors.
 
 All
        our
        transactions with affiliates have been and will be made on terms no less
        favorable to us than could have been obtained from unaffiliated third parties.
        Our policy is to require that a majority of board members approve all
        transactions between us and our officers, directors, principal stockholders
        and
        their affiliates.
 
 WE
        HAVE
        NOT CARRIED PROPERTY OR CASUALTY INSURANCE. ANY BUSINESS
 DISRUPTION,
        LITIGATION OR NATURAL DISASTER MIGHT RESULT IN SUBSTANTIAL COSTS AND DIVERSION
        OF RESOURCES.
 
 The
        insurance industry in China is still at an early stage of development. Insurance
        companies in China offer limited business insurance products, and do not,
        to our
        knowledge, offer business liability insurance. As a result, we do not have
        any
        business liability insurance coverage for our operations. Any business property
        loss, natural disaster or litigation might result in substantial costs and
        diversion of resources.
 
 -21-
 OUR
        QUARTERLY OPERATING RESULTS, REVENUES AND EXPENSES MAY FLUCTUATE SIGNIFICANTLY,
        WHICH COULD HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR COMMON
        STOCK.
 
 Our
        operating results, revenues and expenses may fluctuate significantly from
        quarter to quarter due to a variety of factors including:
 
 o
              The
                  timing, size and execution of sales contracts and home
                  deliveries;
 
 o
              Lengthy
                  and unpredictable sales cycles;
 
 o
              Changes
                  in our operating expenses; and
 
 o
              Fluctuations
                  in general economic conditions.
 
 We
        believe that period-to-period comparisons of our results of operations are
        not a
        good indication of future performance. It is possible that our operating
        results
        will be below your expectations. In that event, the trading price of our
        common
        stock may fall.
 
 MANY
        OF
        OUR COMPETITORS ARE SIGNIFICANTLY LARGER THAN WE ARE, AND THEY HAVE GREATER
        FINANCIAL RESOURCES AND HAVE MORE EXPERIENCED MANAGERS THAN WE DO.
 
 We
        are a
        small company and have little market share in our target market. The market
        of
        residential housing development in Beijing, China, is highly competitive.
        We
        compete with numerous entities, many of which are significantly larger than
        we
        are, and have greater financial resources and have more experienced managers
        than we do. As a result, they may be able to respond more quickly to new
        or
        emerging house plans or construction materials and changes in customer demands
        or to devote greater resources to the development, promotion and sale of
        their
        products or services than we can. If we cannot compete effectively, we may
        never
        become profitable. Although no one of our competitors currently dominates
        or
        significantly influences the market, they could adversely affect
        us.
 
 THE
        RESIDENTIAL REAL ESTATE DEVELOPMENT INDUSTRY IS A HIGH RISK INDUSTRY. IF
        MARKET
        CONDITIONS CHANGE DRAMATICALLY UNFAVORABLY TO US, WE MAY GO OUT OF
        BUSINESS.
 
 The
        real
        estate development industry in general, and the residential luxury real estate
        development industry in particular, is a high risk industry, subject to changes
        in general economic conditions, fluctuating interest rates, and changing
        demand
        for the types of developments being considered. Volatility in local and regional
        land use demands, as well as changing supply and demand for the specific
        uses
        for which the real property is being developed, are also factors in assessing
        the relative risks of the business. The demand for residential real estate
        development is particularly sensitive to changing interest rates and shifting
        demographics. Both of these factors affecting the demand for residential
        housing
        are highly unpredictable over both the short-and long-term. If market conditions
        change dramatically and unfavorably to us, we may go out of
        business.
 
 -22-
  Risks
        Related to Doing Business in China
  
 POLITICAL
        AND ECONOMIC POLICIES IN CHINA COULD AFFECT OUR BUSINESS IN UNPREDICTABLE
        WAYS.
 
 Substantially
        all of our assets are located in China and substantially all of our revenues
        are
        expected to derive from our operations in China. Therefore, our results of
        operations and prospects are subject, to a significant degree, to economic
        and
        political developments in China. The economy of China differs from the economies
        of most developed countries in many respects, including:
 
 o
              The
                  extent of government involvement;
 
 o
              Level
                  of development; and
 
 o
              Allocation
                  of resources.
 
 The
        economy of China has been in transition from a planned economy to a more
        market-oriented economy. Although in recent years the Chinese government
        has
        implemented measures emphasizing the utilization of market forces and the
        reduction of state ownership of productive assets, a substantial portion
        of
        productive assets in China is still owned by the Chinese government, which
        continues to play a significant role in regulating China's economic development,
        setting monetary policy and providing preferential treatment to particular
        industries or companies. Political and economic policies in China could affect
        our business in unpredictable ways. If there are any unfavorable changes
        in
        government policies, such as government control over capital expenditures,
        changes in monetary policy, or changes in planning and zoning policy, we
        may
        experience delays or other problems in obtaining government permits or licenses
        to start or complete our projects.
 
 OUR
        ASSETS, OFFICERS AND DIRECTORS ARE LOCATED OUTSIDE OF THE U.S. IT IS DIFFICULT
        TO EFFECT SERVICE OF PROCESS AND ENFORCEMENT OF LEGAL JUDGMENTS UPON US AND
        OUR
        OFFICERS AND DIRECTORS.
 
 Our
        assets, officers and directors are located in China. As a result, it may
        be
        difficult to effect service of process within the United States and enforce
        judgment of the US courts obtained against us and our executive officers
        and
        directors. Particularly, our shareholders may not be able to:
 
 o  
        Effect service of process within the United States on us or any of our executive
        officers and directors;
 
 o  
        Enforce judgments obtained in U.S. courts against us based upon the civil
        liability provisions of the U.S. federal securities laws;
 
 o  
        Enforce, in a court in China, judgments of U.S. courts based on the civil
        liability provisions of the U.S. federal securities laws; and
 
 o  
        Bring an original action in a court in China to enforce liabilities against
        us
        or any of our executive officers and directors based upon the U.S. federal
        securities laws.
 
 GOVERNMENT
        CONTROL OF CURRENCY CONVERSION MAY AFFECT OUR ABILITY TO PAY DIVIDENDS DECLARED,
        IF ANY, IN FOREIGN CURRENCIES.
 
 -23-
 It
        is
        expected that a substantial portion of our revenues, if any, will be in “yuan”,
        the national currency of China, which is currently not a freely convertible
        currency. A portion of our revenues may have to be converted into US dollars
        to
        make payment of dividends declared, if any, in respect of our common shares.
        Under China's existing foreign exchange regulations, we will be able to pay
        dividends in foreign currencies without prior approval from the State
        Administration of Foreign Exchange of China by complying with certain procedural
        requirements. However, the Chinese government may take measures at its
        discretion in the future to restrict access to foreign currencies if foreign
        currencies become scarce in China. We may not be able to pay dividends in
        foreign currencies to our shareholders if the Chinese government restricts
        access to foreign currencies for current account transactions.
 
 FLUCTUATIONS
        IN THE EXCHANGE RATE BETWEEN THE CHINESE CURRENCY AND THE UNITED STATES DOLLAR
        MAY BRING DOWN OUR OPERATING INCOME.
 
 The
        functional currency of our operations in China is "Yuan." Results of our
        operations are translated at average exchange rates into United States dollars
        for purposes of reporting results. As a result, fluctuations in exchange
        rates
        may adversely affect our expenses and results of operations as well as the
        value
        of our assets and liabilities. On
        July 21, 2005, the Chinese government changed its decade-old policy of
        pegging the value of yuan to the U.S. dollar. Under the new policy, Yuan
        is
        permitted to fluctuate within a narrow and managed band against a basket
        of
        certain foreign currencies. This change in policy has resulted in an
        approximately 11.7% appreciation of the yuan against the U.S. dollar between
        July 21, 2005 and December 31, 2007. Our revenues and costs are denominated
        in yuan, and our financial assets are also denominated in yuan. Any significant
        fluctuations in the exchange rate between the yuan and the United States
        dollar
        may bring down our operating income and lower our stock price. We have no
        current plans to undertake any hedging activity to minimize exchange rate
        fluctuations.
 
  Risks
        Related to Investment in Our Securities
  
 OUR
        COMMON STOCK IS QUOTED ON THE OVER-THE-COUNTER BULLETIN BOARD WHICH MAY MAKE
        IT
        MORE DIFFICULT FOR STOCKHOLDERS TO SELL THEIR SHARES AND MAY CAUSE THE MARKET
        PRICE OF OUR COMMON STOCK TO DECREASE.
 
 Because
        our common stock is quoted on the OTC Bulletin Board, the liquidity of our
        common stock is impaired, not only in the number of shares that are bought
        and
        sold, but also through delays in the timing of transactions, and limited
        coverage by security analysts and the news media of us. As a result, prices
        for
        shares of our common stock may be lower than might otherwise prevail if our
        common stock was traded on NASDAQ or a national securities exchange, like
        the
        American Stock Exchange.
 
 THERE
        HAS
        BEEN LOW VOLUME AND THEREFORE INACTIVE FOR OUR COMMON STOCK, OUR STOCK PRICE
        MAY
        BE VOLATILE OR MAY DECLINE REGARDLESS OF OUR OPERATING PERFORMANCE, AND YOU
        MAY
        NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE YOUR STOCK PURCHASE
        PRICE.
 
 If
        you
        purchase shares of our common stock, you may not be able to resell those
        shares
        at or above your original purchase price. An active or liquid market in our
        common stock may not develop or, if it does develop, it may not be sustainable.
        The market price of our common stock may fluctuate significantly in response
        to
        numerous factors, many of which are beyond our control.
 
 -24-
 OUR
        COMMON STOCK IS DEEMED A PENNY STOCK. AS A RESULT, TRADING OF OUR SHARES
        IS
        SUBJECT TO SPECIAL REQUIREMENTS THAT COULD IMPEDE OUR SHAREHOLDERS' ABILITY
        TO
        RESELL THEIR SHARES.
 The
        shares offered by this prospectus constitute penny stock under the Securities
        Exchange Act of 1934 (the “Exchange Act”). The shares will remain penny stock
        for the foreseeable future. As defined in Rule 3a51-1 of the Exchange Act,
        penny
        stocks generally are equity securities with a price of less than $5.00, other
        than securities registered on certain national securities exchanges or quoted
        on
        the NASDAQ system, provided that current price and volume information with
        respect to transactions in such securities is provided by the exchange or
        system.
 
 Section
        15(g) of the Exchange Act and Rule 15g-2 of the Exchange Act require
        broker-dealers dealing in penny stocks to provide potential investors with
        a
        document disclosing the risks of penny stocks and to obtain a manually signed
        and dated written receipt of the document before effecting any transaction
        in a
        penny stock for the investor's account. Moreover, Rule 15g-9 of the Exchange
        Act
        requires broker-dealers in penny stocks to approve the account of any investor
        for transactions in such stocks before selling any penny stock to that investor.
        This procedure requires the broker-dealer to:
 
 o  
        Obtain from the investor information concerning his or her financial situation,
        investment experience and investment objectives;
 
 o  
        Reasonably determine, based on that information, that transactions in penny
        stocks are suitable for the investor and that the investor has significant
        knowledge and experience to be reasonably capable of evaluating the risks
        of
        penny stock transactions;
 
 o  
        Provide the investor with a written statement setting forth the basis on
        which
        the broker-dealer made the determination in (ii) above; and
 
 o  
        Receive a signed and dated copy of such statement from such investor, confirming
        that it accurately reflects the investor's financial situation, investment
        experience and investment objectives.
 
 Compliance
        with these requirements may make it more difficult for investors in our common
        stock to resell the shares to third parties or to otherwise dispose of
        them.
 
 Item
        2.
        Unregistered Sales of Equity Securities and Use of Proceeds: None
 
 
 Item
        3.
        Defaults Upon Senior Securities: None.
 
 
 Item
        4.
        Submission of Matters to a Vote of Security Holders: None.
 
 
 Item
        5.
        Other Information: None.
 
 
 Item
        6.
        Exhibits and Reports On Form 8-K.
 
 -25-
 
 (a)
        Exhibits
 Exhibit
                    No.
                
                Description31.1
                
                Section
                    302 Certification of CEO31.2
                
                Section
                    302 Certification of CFO32.1
                
                Section
                    906 Certification of CEO32.2
                
                Section
                    906 Certification of CFO
 (b)
          Reports on Form 8-K: None.
 
 
 SIGNATURES
 
 In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
 
 
 DAHUA,
        INC.
  By:
                /s/ Yonglin
                Du
              
              
              By:
                /s/ Meng
                HuaYonglin
                Du, Chief Executive Officer and President
              
              
              Meng
                Hua, Chief Financial OfficerAugust
                  14, 2008
              
              
              August
                  14, 2008
   -26-