UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)


x
            Quarterly
      Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of
      1934





For the
quarterly period ended:June30, 2009





Or




 ̈
            Transition
      Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of
      1934





For the
transition period from ______________ to _______________





Commission
File Number: 000-53155




VLOV
INC.







Nevada
                      
                      20-8658254(State
      or other jurisdiction of incorporation of origination)
                      
                      (I.R.S.
      Employer Identification
Number)





No
      1749-1751 Xiangjiang Road
                        Shishi
      City, Fujian Province
                        People’s
      Republic of China
                      
                      N/A(Address
      of principal executive offices)
                      
                      (Zip
      code)





(86595)
88554555












Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes  ̈ No  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer   ̈
              Accelerated
      filer  ̈Non-accelerated
      filer  ̈
              Smaller
      reporting company x





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





APPLICABLE
ONLY TO CORPORATE ISSUERS:





Indicate
the number of shares outstanding of each issuer’s classes of common stock, as of
the latest practicable date: 16,014,421 shares issued and outstanding as of
August 13, 2009.





TABLE
OF CONTENTS




TO
QUARTERLY REPORT ON FORM 10-Q


FOR
QUARTER ENDED JUNE 30, 2009





PagePART
      I
                        
                        FINANCIAL
      INFORMATIONItem
      1.
                        
                        Financial
      Statements (unaudited)
                        
                        F-1Consolidated
      Balance Sheets as of June 30, 2009 (unaudited) and December 31,
      2008
                        
                        F-1Consolidated
      Statements of Income and Comprehensive Income for the three months and six
      months ended June 30, 2009 and 2008 (unaudited)
                        
                        F-2Consolidated
      Statements of Cash Flows for the three months and six months ended June
      30, 2009 and 2008 (unaudited)
                        
                        F-3Notes
      to the Consolidated Financial Statements
                        
                        F-4Item
      2.
                        
                        Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                        
                        4Item
      3.
                        
                        Quantitative
      and Qualitative Disclosures about Market Risk
                        
                        11Item
      4.
                        
                        Controls
      and Procedures
                        
                        11PART
      II
                        
                        OTHER
      INFORMATIONItem
      1.
                        
                        Legal
      Proceedings
                        
                        12Item
      1A.
                        
                        Risk
      Factors
                        
                        12Item
      2.
                        
                        Unregistered
      Sales of Equity Securities and Use of Proceeds
                        
                        12Item
      3.
                        
                        Defaults
      Upon Senior Securities
                        
                        12Item
      4.
                        
                        Submission
      of Matters to a Vote of Security Holders
                        
                        12Item
      5.
                        
                        Other
      Information
                        
                        12Item
      6.
                        
                        Exhibits
                        
                        13Signatures
                        
                        14


2


CAUTION
REGARDING FORWARD-LOOKING INFORMATION





All
statements contained in this Quarterly Report on Form 10-Q (“Form 10-Q”) for
VLOV Inc., other than statements of historical facts, that address future
activities, events or developments are forward-looking statements, including,
but not limited to, statements containing the words “believe,” “anticipate,”
“expect” and words of similar import.  These statements are based on
certain assumptions and analyses made by us in light of our experience and our
assessment of historical trends, current conditions and expected future
developments as well as other factors we believe are appropriate under the
circumstances.  However, whether actual results will conform to the
expectations and predictions of management is subject to a number of risks and
uncertainties that may cause actual results to differ materially.





Such
risks include, among others, the following: national and local general economic
and market conditions; our ability to sustain, manage or forecast our growth;
raw material costs and availability; new product development and introduction;
existing government regulations and changes in, or the failure to comply with,
government regulations; adverse publicity; competition; the loss of significant
customers or suppliers; fluctuations and difficulty in forecasting operating
results; changes in business strategy or development plans; business
disruptions; the ability to attract and retain qualified personnel; the ability
to protect technology; and other factors referenced in this and previous
filings.





Consequently,
all of the forward-looking statements made in this Form 10-Q are qualified by
these cautionary statements and there can be no assurance that the actual
results anticipated by management will be realized or, even if substantially
realized, that they will have the expected consequences to or effects on our
business operations.


3


PART
I - FINANCIAL INFORMATION





Item
      1.
            Financial
      Statements





VLOV,
INC.


CONSOLIDATED
BALANCE SHEETS


(Amounts
in thousands)




June 30, 2009
                
                
                December 31,(unaudited)
                
                
                2008ASSETSCurrent
      Assets:Cash
      and cash equivalents
                
                $
                2,286
                
                
                $
                2,863Pledged
      bank deposits
                
                
                -
                
                
                
                88Accounts
      receivable
                
                
                10,039
                
                
                
                7,843Inventories
                
                
                495
                
                
                
                514Prepaid
      expenses
                
                
                15
                
                
                
                -Total
      current assets
                
                
                12,835
                
                
                
                11,308Property,
      plant and equipment, net
                
                
                1,021
                
                
                
                1,067Land
      use rights
                
                
                267
                
                
                
                272TOTAL
      ASSETS
                
                $
                14,123
                
                
                $
                12,647LIABILITIES
      AND EQUITYCurrent
      Liabilities:Accounts
      payable
                
                $
                3,407
                
                
                $
                2,040Accrued
      expenses and other payables
                
                
                106
                
                
                
                543Amount
      due to a director
                
                
                1
                
                
                
                2Bills
      payable
                
                
                -
                
                
                
                293Short-term
      bank loans
                
                
                733
                
                
                
                587Income
      taxes payable
                
                
                1,362
                
                
                
                1,613Total
      current liabilities
                
                
                5,609
                
                
                
                5,078Commitments
      and contingencies
                
                
                -
                
                
                
                -Equity:Common
      stock, $0.00001 par value, 100,000,000 shares authorized, 16,000,000 and
      14,560,000 shares issued and outstanding as of June 30, 2009 and December
      31, 2008 respectively
                
                
                160
                
                
                
                146Additional
      paid-up capital
                
                
                1,078
                
                
                
                1,091Statutory
      reserve
                
                
                913
                
                
                
                913Retained
      earnings
                
                
                5,834
                
                
                
                4,876Accumulated
      other comprehensive income
                
                
                529
                
                
                
                543Total
      stockholders' equity
                
                
                8,514
                
                
                
                7,569TOTAL
      LIABILITIES AND  STOCKHOLDERS' EQUITY
                
                $
                14,123
                
                
                $
                12,647





See
accompanying notes to consolidated financial statements


F-1


VLOV,
INC.


CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


(Amounts
in thousands, except per share data)




(Unaudited)




Three
      Months Ended June 30,
                        
                        Six
      Months Ended June 30,2009
                        
                        
                        2008
                        
                        2009
                        
                        2008Net
      sales
                        
                        $
                        14,073
                        
                        
                        $
                        19,405
                        
                        
                        $
                        31,939
                        
                        
                        $
                        30,566Cost
      of sales
                        
                        
                        8,997
                        
                        
                        
                        12,358
                        
                        
                        
                        20,464
                        
                        
                        
                        19,199Gross
      profit
                        
                        
                        5,076
                        
                        
                        
                        7,047
                        
                        
                        
                        11,475
                        
                        
                        
                        11,367Operating
      expenses:Selling
      expenses
                        
                        
                        1,314
                        
                        
                        
                        787
                        
                        
                        
                        2,059
                        
                        
                        
                        1,581General
      and administrative expenses
                        
                        
                        438
                        
                        
                        
                        822
                        
                        
                        
                        1,052
                        
                        
                        
                        1,5851,752
                        
                        
                        
                        1,609
                        
                        
                        
                        3,111
                        
                        
                        
                        3,166Income
      from operations
                        
                        
                        3,324
                        
                        
                        
                        5,438
                        
                        
                        
                        8,364
                        
                        
                        
                        8,201Other
      income (expenses):Interest
      income
                        
                        
                        3
                        
                        
                        
                        5
                        
                        
                        
                        10
                        
                        
                        
                        9Interest
      expense
                        
                        
                        (14
                        )
                        
                        
                        (16
                        )
                        
                        
                        (28
                        )
                        
                        
                        (32
                        )(11
                        )
                        
                        
                        (11
                        )
                        
                        
                        (18
                        )
                        
                        
                        (23
                        )Income
      before provision for income taxes
                        
                        
                        3,313
                        
                        
                        
                        5,427
                        
                        
                        
                        8,346
                        
                        
                        
                        8,178Provision
      for income taxes
                        
                        
                        1,003
                        
                        
                        
                        1,357
                        
                        
                        
                        2,260
                        
                        
                        
                        2,044Net
      income
                        
                        
                        2,310
                        
                        
                        
                        4,070
                        
                        
                        
                        6,086
                        
                        
                        
                        6,134Other
      comprehensive income:Foreign
      currency translation adjustment
                        
                        
                        (21
                        )
                        
                        
                        186
                        
                        
                        
                        (14
                        )
                        
                        
                        332Comprehensive
      income
                        
                        $
                        2,289
                        
                        
                        
                        4,256
                        
                        
                        $
                        6,072
                        
                        
                        $
                        6,466Basic
      and diluted net earnings per share
                        
                        $
                        0.14
                        
                        
                        
                        0.28
                        
                        
                        $
                        0.39
                        
                        
                        $
                        0.42Weighted
      average number of common shares outstanding, basic and
    diluted
                        
                        
                        16,000,000
                        
                        
                        
                        14,560,000
                        
                        
                        
                        15,657,901
                        
                        
                        
                        14,560,000





See
accompanying notes to consolidated financial statements


F-2


VLOV,
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Amounts
in thousands)




(Unaudited)




Six Months Ended June 30,2009
                        
                        2008Cash
      flows from operating activities:Net
      income
                        
                        $
                        6,086
                        
                        
                        $
                        6,134Adjustments
      to reconcile net income to net cash  provided by operating
      activities:Depreciation
      and amortization
                        
                        
                        50
                        
                        
                        
                        52Write
      off of property, plant and equipment
                        
                        
                        -
                        
                        
                        
                        1(Increase)
      decrease in assets:Accounts
      receivables
                        
                        
                        (2,207
                        )
                        
                        
                        (4,027
                        )Inventories
                        
                        
                        17
                        
                        
                        
                        4,044Prepaid
      expenses
                        
                        
                        (15
                        )
                        
                        
                        128Increase
      (decrease) in liabilities:Accounts
      payable
                        
                        
                        1,371
                        
                        
                        
                        (1,139
                        )Bills
      payable, accrued expenses and other payables
                        
                        
                        (521
                        )
                        
                        
                        (531
                        )Income
      and other tax payables
                        
                        
                        (458
                        )
                        
                        
                        (1,386
                        )Net
      cash provided by operating activities
                        
                        
                        4,323
                        
                        
                        
                        3,276Cash
      flows from investing activities:Purchases
      of property, plant and equipment
                        
                        
                        -
                        
                        
                        
                        (59
                        )Disposals
      of property, plant and equipment
                        
                        
                        -
                        
                        
                        
                        7Net
      cash used in investing activities
                        
                        
                        -
                        
                        
                        
                        (52
                        )Cash
      flows from financing activities:Pledged
      bank deposits
                        
                        
                        88
                        
                        
                        
                        85Amount
      due from a director
                        
                        
                        -
                        
                        
                        
                        163Proceeds
      from debt financing
                        
                        
                        440
                        
                        
                        
                        284Payments
      of short-term debt
                        
                        
                        (293
                        )
                        
                        
                        (284
                        )Payments
      of dividend *
                        
                        
                        (5,130
                        )
                        
                        
                        (3,120
                        )Net
      cash used in financing activities
                        
                        
                        (4,895
                        )
                        
                        
                        (2,872
                        )Effect
      of exchange rate changes
                        
                        
                        (5
                        )
                        
                        
                        183Net
      (decrease) increase in cash and cash equivalents
                        
                        
                        (577
                        )
                        
                        
                        535Cash
      and cash equivalents, beginning of year
                        
                        
                        2,863
                        
                        
                        
                        2,758Cash
      and cash equivalents, end of year
                        
                        $
                        2,286
                        
                        
                        $
                        3,293Supplemental
      disclosure of cash flow information:Interest
      paid
                        
                        $
                        28
                        
                        
                        $
                        15Income
      taxes paid
                        
                        $
                        1,829
                        
                        
                        $
                        792





See
accompanying notes to consolidated financial statements





*The dividend was paid to the
private shareholders prior to the reverse merger.


F-3


VLOV,
INC.


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS





1.
            ORGANIZATION





VLOV Inc.
(“VLOV” or the “Company”) was incorporated in Nevada on October 30, 2006
originally under the name “Sino Charter, Inc.” (“Sino Charter”)  On
February 13, 2009, Sino Charter completed a share exchange transaction with Peng
Xiang Peng Fei Investments Limited (“PXPF”), a British Virgin Island limited
liability company, and PXPF became a wholly-owned subsidiary of the Company. The
share exchange transaction was accounted for as a reverse acquisition and
recapitalization and, as a result, the consolidated financial statements of Sino
Charter (the legal acquirer) is, in substance, those of PXPF (the accounting
acquirer), with the assets and liabilities, and revenues and expenses, of Sino
Charter being included effective from the date of the share exchange
transaction. Sino Charter, Inc. changed its name to “VLOV Inc.” on March 20,
2009 in connection with the share exchange transaction.





VLOV is
in the business of designing, manufacturing and distributing apparel under the
brand name “VLOV” in the People’s Republic of China (“China” or the “PRC”). All
of the operations are carried out by Jinjiang Yinglin Jinduren Fashion limited
(“Yinglin Jinduren”), a company organized in the PRC which the Company controls.
VLOV controls Yinglin Jinduren through a series of contractual arrangements
between Korea Jinduren (International) Dress Limited (“Korea Jinduren”), a Hong
Kong company and the wholly-owned direct subsidiary of PXPF, and Yinglin
Jinduren. The contractual arrangements between Korea Jinduren and Yinglin
Jinduren enable VLOV to substantially influence the daily operations and
financial affairs of Yinglin Jinduren, appoint its senior executives and approve
all matters requiring shareholder approval. As a result of these contractual
arrangements, which obligate Korea Jinduren to absorb a majority of the risk of
loss from the activities of Yinglin Jinduren and enable Korea Jinduren to
receive a majority of Yinglin Jinduren’s expected residual returns, VLOV
accounts for Yinglin Jinduren as a variable interest entity (“VIE”) under FASB
Interpretation No. 46R (“FIN 46R”), “Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51.” Accordingly, VLOV consolidates the
results, assets and liabilities of Yinglin Jinduren.





2.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES




(a)
            Basis
      of Presentation and Consolidation





The
accompanying unaudited consolidated financial statements have been prepared in
conformity with generally accepted accounting principles in the United States
applicable to interim financial information and the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all adjustments (which include all significant normal and recurring
adjustments) necessary to present fairly the financial position, results of
operations, and cash flows  for all periods presented have been made.
The accompanying results of operations are not necessarily indicative of the
operating results that may be expected for the entire year ending December 31,
2009. These consolidated financial statements should be read in conjunction with
the consolidated financial statements and accompanying notes thereto of PXPF for
the year ended December 31, 2008 and the pro forma consolidated financial
statements and accompanying notes thereto of the Company for the year ended
December 31, 2008 filed with the Company’s current report on Form 8-K/A on May
4, 2009.




The
consolidated financial statements include the financial statements of the
Company, its subsidiaries PXPF and Korea Jinduren, and its VIE, Yinglin
Jinduren. All significant inter-company transactions and balances between the
Company, its subsidiaries and the VIE are eliminated upon
consolidation.





(b)
            Use
      of Estimates





Management
has made a number of estimates and assumptions relating to the reporting of
assets, liabilities, revenues and expenses and the disclosure of contingent
assets and liabilities to prepare these consolidated financial statements in
conformity with accounting principles generally accepted in the United States.
Significant areas requiring the use of management estimates relate primarily to
returns, sales allowances and customer chargebacks, inventory write-downs and
valuation of long-lived assets. Actual results could differ from those
estimates.





(c)
            Revenue
      Recognition





Revenue
from the sales of goods is recognized on the transfer of significant risks and
rewards of ownership, which generally coincides with the time when the goods are
delivered and the title has passed to the customers. Revenue excludes
value-added tax and is net of trade discounts and allowances.


F-4





(d)
            Cash
      and Cash Equivalents





For
purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents. Cash and cash equivalents comprise cash at bank and on hand
and demand deposits with banks.





(e)
            Accounts
      Receivable





Accounts
receivable, which are unsecured, are stated at the amount the Company expects to
collect. The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
The Company evaluates the collectability of its accounts receivable based on a
combination of factors, including customer credit-worthiness and historical
collection experience. Management reviews the receivable aging and adjusts the
allowance based on historical experience, financial condition of the customer
and other relevant current economic factors.  As of June 30, 2009, all
of the trade receivable balances were aged less than 90 days and management has
determined no allowance for uncollectible amounts is required.





(f)
            Depreciation
      and Amortization





Property,
plant and equipment are stated at cost less accumulated depreciation and
impairment losses. Depreciation of property, plant and equipment is computed
using the straight-line method based on the following estimated useful
lives:





Buildings
              30
      yearsFurniture,
      fixtures and equipment
              5
      yearsMotor
      vehicles
              5
      yearsOffice
      equipment
              5
      yearsPlant
      and machinery
              5
      to 15 years





(g)
            Inventories





Inventories
are stated at the lower of cost or market value, determined by the weighted
average method. Work-in-progress and finished goods inventories consist of raw
materials, direct labor and overhead associated with the manufacturing
process.





(h)
            Foreign
      Currency Translation





The
Company’s functional currency is Renminbi (“RMB”) and its reporting currency is
U.S. dollars. The Company’s balance sheet accounts are translated using the
closing exchange rate in effect at the balance sheet dates and operating
accounts are translated using the average exchange rate prevailing
during the respective periods. Equity accounts are translated using the
historical rate as incurred. Translation gains and losses are deferred and
accumulated as a component of accumulated other comprehensive income in
shareholders’ equity. Transaction gains and losses that arise from exchange rate
fluctuations from transactions denominated in a currency other than the
functional currency are included in the statement of operations as
incurred.





(j)
            Land
      Use Right





All land
in the PRC is state-owned and cannot be sold to any individual or company.
However, the government grants “land use right” to allow individuals or
companies to use land.





The
Company acquired land use right on March 25, 2004 for a total amount of
US$259,000. Such land use right is for 50 years and expires in
2054.





Land use
right is stated at cost less accumulated amortization and impairment losses.
Amortization is calculated on the straight-line method over the estimated useful
life of 50 years.





The
Company’s land use right, which is considered intangible asset is reviewed at
least annually to determine whether its carrying value has become impaired. The
Company considers assets to be impaired if the carrying value exceeds the future
projected cash flows from related operations. The Company also re-evaluates the
periods of amortization to determine whether subsequent events and circumstances
warrant revised estimates of useful lives. As of June 30, 2009, the Company
expects such asset to be asset fully recoverable.


F-5





(k)
            Long-Lived
      Assets





The
Company estimates the future undiscounted cash flows to be derived from an asset
to assess whether or not impairment has occurred when events or circumstances
indicate that the carrying value of a long-lived asset may be impaired. If the
carrying value exceeds the Company’s estimate of future undiscounted cash flows,
the Company then calculates the impairment as the excess of the carrying value
of the asset over the Company’s estimate of its fair market value.





(l)
            Income
      Taxes





The
Company is mainly subject to income taxes in the PRC. Significant judgment is
required in determining the provision for income taxes. There are many
transactions and calculations for which the ultimate tax determination is
uncertain during the ordinary course of business. The Company recognizes
liabilities for anticipated tax audit issues based on estimates of whether
additional taxes will be due. Where the final tax outcome of these matters is
different from the amounts that were initially recorded, such differences affect
the income tax and deferred tax provisions in the period in which such
determination is made.





The
Company accounts for income taxes under Statement of Financial Accounting
Standard (SFAS) No. 109, “Accounting for Income Taxes” and FASB Interpretation
No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). Under SFAS No.
109, 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
applicable to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Under SFAS No. 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.





Based on
our evaluation, we have concluded that there are no significant uncertain tax
positions, as defined by FIN 48, that require recognition in our financial
statements. Our evaluation was performed for the tax year ended December 31,
2008 which was examined by major tax jurisdictions (PRC).  We are in
the process of the evaluation for the tax year ending December 31, 2009, which
remains subject to examination by major tax jurisdictions (PRC) as of June 30,
2009. We may from time to time be assessed interest or penalties by major tax
jurisdictions. In the event we receive an assessment for interest and/or
penalties, it will be classified in the financial statements as tax
expense.





(m)
            Comprehensive
      Income





The
Company has adopted the provisions of SFAS No. 130, “Reporting Comprehensive
Income” (“SFAS No. 130”). SFAS No. 130 establishes standards for the reporting
and presentation and disclosure of comprehensive income, its components and
accumulated balances in a full set of general purpose financial statements. SFAS
No. 130 defines comprehensive income or loss to include all changes in equity
except those resulting from investments by owners and distributions to owners,
including adjustments to minimum pension liabilities, accumulated foreign
currency translation, and unrealized gains or losses on marketable
securities.





The
Company’s only component of other comprehensive income is foreign currency
translation gain (loss). The foreign currency translation loss and gain for the
three and six months ended June 30, 2009 and 2008 were approximately ($21,000),
$186,000, ($14,000) and $332,000, respectively. Accumulated other comprehensive
income is recorded as a separate component of shareholders’ equity.





(n)
            Advertising
      Costs





Advertising
costs are expensed in the period in which the advertisements are first run or
over the life of the endorsement contract. Advertising costs were approximately
$748,000 and $549,000 for the three months and $1,444,000 and $1,313,000 for the
six months ended June 30, 2009 and 2008, respectively. Advertising costs include
advertising subsidy expense which is accrued based on the terms in effect with
distributors and paid when all attaching conditions are completed.





(o)
            Shipping
      and Handling Costs





Shipping and handling costs are
expensed as incurred and included in cost of sales.





(p)
            Research
      and Development Costs





The
Company charges all product design and development costs to expense when
incurred. Product design and development costs aggregated approximately
$368,000, $623,000, $781,000 and $1,250,000 for the three months and six months
ended June 30 2009 and 2008, respectively.


F-6


(q)
            Fair
      Value of Financial Instruments





The
carrying amount of the Company’s consolidated financial instruments, which
principally include cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses, approximates fair value due to the relatively
short maturity of such instruments.





The
carrying amount of the Company’s short-term borrowings approximates the fair
value based upon current rates and terms available to the Company for similar
debt.





(r)
            Recently
      Adopted Accounting Pronouncements





The
Company adopted Statement of Financial Accounting Standards (“SFAS”) 157 “Fair
Value Measurements” and SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities including an Amendment of FASB Statement No.
115” (“FAS 159”) on January 1, 2008.   SFAS 157 establishes a
fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value into three levels as follows:





Level I -
Quoted prices (unadjusted) in active markets for identical asset or liabilities
that the Company has the ability to access as of the measurement
date.





Level II
- Inputs other than quoted prices included within Level I that are directly
observable for the asset or liability or indirectly observable through
corroboration with observable market data.





Level III
- Unobservable inputs for the asset or liability only used when there is little,
if any, market activity for the asset or liability at the measurement
date.





Since the
issuance of SFAS No. 157, the FASB has issued several FASB Staff Positions
(FSPs) to clarify the application of SFAS No. 157.  FSPs apply to
financial assets within the scope of accounting pronouncements that require or
permit fair value measurements in accordance with SFAS No. 157.  In
February 2008, the FASB released FSP No. 157-2, “Effective Date of FASB
Statement No. 157”, which delayed the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually).  In October 2008, the FASB issued FSP No.
157-3, “Determining the Fair Value of a Financial Asset When the Market for That
Asset Is Not Active”, which clarifies the application of SFAS No. 157 in a
market that is not active and provides guidance in key considerations in
determining the fair value of a financial asset when the market for that
financial asset is not active.  FSP No. 157-3 became effective
immediately, and includes prior period financial statements that have not yet
been issued.  In April 2009, the FASB issued FSP No. 157-4,
“Determining the Fair Value When the Volume and Level of Activity for the Asset
or Liability Have Significantly Decreased and Identifying Transactions That Are
Not Orderly”, which provides additional guidance for estimating fair value in
accordance with SFAS No. 157, when the volume and level of activity for the
asset or liability have significantly decreased.  FSP No. 157-4 also
provides guidance on identifying circumstances that indicate a transaction is
not orderly.  FSP No. 157-4 is effective for interim and periods
ending after June 15, 2009, and shall be applied prospectively.





In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS No. 159”), which provides companies with an option to report selected
financial assets and liabilities at fair value. SFAS No. 159’s objective is to
reduce both complexity in accounting for financial instruments and the
volatility in earnings caused by measuring related assets and liabilities
differently. Generally accepted accounting principles have required different
measurement attributes for different assets and liabilities that can create
artificial volatility in earnings. SFAS No. 159 helps to mitigate this type of
accounting-induced volatility by enabling companies to report related assets and
liabilities at fair value, which would likely reduce the need for companies to
comply with detailed rules for hedge accounting. SFAS No. 159 also establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar types
of assets and liabilities. SFAS No. 159 requires companies to provide additional
information that will help investors and other users of financial statements to
more easily understand the effect of the Company’s choice to use fair value on
its earnings. SFAS No. 159 also requires companies to display the fair value of
those assets and liabilities for which the Company has chosen to use fair value
on the face of the balance sheet. SFAS No. 159 does not eliminate disclosure
requirements included in other accounting standards, including requirements for
disclosures about fair value measurements included in SFAS No. 157 and SFAS No.
107.  The Company adopted SFAS No. 159 on January 1, 2008, but did not
elect the fair value option for any financial assets or liabilities.
Accordingly, the adoption of SFAS No. 159 did not have any impact on the
Company’s consolidated financial statement presentation or
disclosures.





The
Company’s financial assets mainly consist of cash and cash equivalents, and
accounts receivables. The fair values of the financial assets approximate their
book value due to short maturities. Therefore, the adoption of the above
accounting principles, as they became or will become applicable to the Company,
had no significant impact on the measurement of the financial
assets.


F-7





In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
141(R), “Business Combinations” (“SFAS No. 141(R)”), which requires an acquirer
to recognize in its financial statements as of the acquisition date (i) the
identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree, measured at their fair values on the acquisition date,
and (ii) goodwill as the excess of the consideration transferred plus the fair
value of any noncontrolling interest in the acquiree at the acquisition date
over the fair values of the identifiable net assets acquired.
Acquisition-related costs, which are the costs an acquirer incurs to effect a
business combination, will be accounted for as expenses in the periods in which
the costs are incurred and the services are received, except that costs to issue
debt or equity securities will be recognized in accordance with other applicable
GAAP. SFAS No. 141(R) makes significant amendments to other Statement of
Financial Accounting Standards and other authoritative guidance to provide
additional guidance or to conform the guidance in that literature to that
provided in SFAS No. 141(R). SFAS No. 141(R) also provides guidance as to what
information is to be disclosed to enable users of financial statements to
evaluate the nature and financial effects of a business combination. SFAS No.
141(R) is effective for financial statements issued for fiscal years beginning
on or after December 15, 2008.  The Company adopted SFAS No. 141(R) on
January 1, 2009.  The adoption of SFAS 141(R) did not have any impact
on the Company’s consolidated financial statement presentation or
disclosures.





In
December 2007, the FASB issued Statement of Financial Accounting Standards No.
160, “Noncontrolling Interests in Consolidated Financial Statements — an
amendment of ARB No. 51” (“SFAS No. 160”), which requires that ownership
interests in subsidiaries held by parties other than the parent, and the amount
of consolidated net income, be clearly identified, labeled and presented in the
consolidated financial statements.  SFAS No. 160 also requires that
once a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary be initially measured at fair
value.  Sufficient disclosures are required to clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners.  SFAS No. 160 amends FASB No. 128 to provide
that the calculation of earnings per share amounts in the consolidated financial
statements will continue to be based on the amounts attributable to the parent.
SFAS No. 160 is effective for financial statements issued for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008, and requires retroactive adoption of the presentation and disclosure
requirements for existing minority interests.  All other requirements
are applied prospectively.  The Company adopted SFAS No. 160 on
January 1, 2009.  The adoption of SFAS No. 160 did not have any impact
on the Company’s consolidated financial statement presentation or
disclosures.





In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161,
“Disclosures about Derivative Instruments and Hedging Activities — an amendment
of FASB Statement No. 133” (“SFAS No. 161”).  SFAS No. 161 amends and
expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities” (“SFAS No. 133”). The objective of SFAS No.
161 is to provide users of financial statements with an enhanced understanding
of how and why an entity uses derivative instruments, how derivative instruments
and related hedged items are accounted for under SFAS No. 133 and its related
interpretations, and how derivative instruments and related hedged items affect
an entity’s financial position, financial performance, and cash
flows.  SFAS No. 161 requires qualitative disclosures about objectives
and strategies for using derivatives, quantitative disclosures about fair value
amounts of and gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative
agreements.  SFAS No. 161 applies to all derivative financial
instruments, including bifurcated derivative instruments (and nonderivative
instruments that are designed and qualify as hedging instruments pursuant to
paragraphs 37 and 42 of SFAS No. 133) and related hedged items accounted for
under SFAS No. 133 and its related interpretations.  SFAS No. 161 also
amends certain provisions of SFAS No. 133. SFAS No. 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged.  SFAS No. 161
encourages, but does not require, comparative disclosures for earlier periods at
initial adoption.  The Company adopted SFAS No. 161 on January 1,
2009.  The adoption of SFAS No. 161 did not have any impact on the
Company’s consolidated financial statement presentation or
disclosures.





In June
2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 07-05,
“Determining Whether an Instrument (or Embedded Feature) is Indexed to an
Entity’s Own Stock” (“EITF 07-05”). EITF 07-05 mandates a two-step process for
evaluating whether an equity-linked financial instrument or embedded feature is
indexed to the entity’s own stock. Warrants that a company issues that contain a
strike price adjustment feature, upon the adoption of EITF 07-05, results in the
instruments no longer being considered indexed to the company’s own stock.
Accordingly, adoption of EITF 07-05 will change the current classification (from
equity to liability) and the related accounting for such warrants outstanding at
that date. EITF 07-05 is effective for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. The Company adopted EITF
07-05 on January 1, 2009.  The adoption of EITF 07-05 did not have any
impact on the Company’s consolidated financial statement presentation or
disclosures.  The Company adopted EITF 07-05 on January 1, 2009. 
The adoption of EITF 07-05 did not have any impact on the Company’s consolidated
financial statement presentation or disclosures.





In April
2009, the FASB issued FSP 107-1, “Interim Disclosures about Fair Value of
Financial Instruments”, which requires disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements.  FSP 107-1 also amends APB Opinion
No. 28, “Interim Financial Reporting”, to require those disclosures in
summarized financial information at interim reporting.  The adoption
of FSP 107-1 did not have any impact on the Company’s consolidated financial
statement presentation or disclosures.


F-8





In April
2009, the Financial Accounting standards Board (FASB) issued Staff Position
(FSP) No. 115-2 and No. 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments,which amends existing guidance for
determining whether impairment is other-than-temporary (OTTI) for debt
securities.  The FSP requires an entity to assess whether it intends
to sell, or it is more likely than not that it will be required to sell a
security in an unrealized loss position before recovery of its amortized cost
basis.  If either of these criteria is met, the entire difference
between amortized cost and fair value is recognized in earnings.  For
securities that do not meet the aforementioned criteria, the amount of
impairment recognized in earnings is limited to the amount related to credit
losses, while impairment related to other factors is recognized in other
comprehensive income.    Additionally, the FSP expands and
increases the frequency of existing disclosures about other-than-temporary
impairments for debt and equity securities.  This FSP is effective for
interim and annual reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009.  The
adoption of this FSP on April 1, 2009 did not have a material impact on the
Company’s results of operations or financial position.





In April
2009, the FASB issued FSP No. 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset and Liability Have Significantly
Decreased and Identifying Transactions That Are Not
Orderly.  This FSP emphasizes that even if there has been a
significant decrease in the volume and level of activity, the objective of a
fair value measurement remains the same.  Fair value is the price that
would be received to sell an asset or paid to transfer a liability in an orderly
transaction (that is, not a forced liquidation or distressed sale) between
market participants.  The FSP provides a number of factors to consider
when evaluating whether there has been a significant decrease in the volume and
level of activity for an asset or liability in relation to normal market
activity.   In addition, when transactions or quoted prices are
not considered orderly, adjustments to those prices based on the weight of
available information may be needed to determine the appropriate fair
value.  The FSP also requires increased disclosures.  This
FSP is effective for interim and annual reporting periods ending after June 15,
2009, and shall be applied prospectively.  Early adoption is permitted
for periods ending after March 15, 2009.  The adoption of this FSP at
June 30, 2009 did not have a material impact on the Company’s results of
operations or financial position.





In May
2009, the FASB issued SFAS 165, Subsequent
Events.  SFAS 165 establishes the principles and requirements
for the disclosure of subsequent events including the period after the balance
sheet date during which management of a reporting entity will evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements, the circumstances under which an entity will recognize
events or transactions occurring after the balance sheet date in its financial
statements, and the disclosures that an entity will make about events or
transactions that occurred after the balance sheet date.  SFAS 165 is
effective for interim or annual periods ending after June 15, 2009, and should
be applied prospectively.  Management evaluated events that occurred
after June 30, 2009 and as of August 13, 2009, the date the interim financial
statements as of and for the three-months and six-months ended June 30, 2009
were issued, and determined that there was no significant event as defined by
SFAS 165.





Management
does not believe that any other recently issued, but not yet effective,
accounting standards or pronouncements, if currently adopted, would have a
material effect on the Company’s consolidated financial statement presentation
or disclosures.





(2)
            PROPERTY,
      PLANT AND EQUIPMENT





Property, plant and equipment are
summarized as follows (in thousands):





June 30,
                  
                  
                  December 31,2009
                  
                  
                  2008Buildings
                  
                  $
                  914
                  
                  
                  $
                  914Furniture,
      fixtures and equipment
                  
                  
                  84
                  
                  
                  
                  84Motor
      vehicles
                  
                  
                  196
                  
                  
                  
                  196Office
      equipment
                  
                  
                  24
                  
                  
                  
                  24Plant
      and machinery
                  
                  
                  235
                  
                  
                  
                  235Total
      property, plant and equipment
                  
                  
                  1,453
                  
                  
                  
                  1,453Less:
      accumulated depreciation
                  
                  
                  (432
                  )
                  
                  
                  (386
                  )$
                  1,021
                  
                  
                  $
                  1,067


F-9




Depreciation
expense was approximately $22,000, $26,000, $46,000 and $48,000 for the three
months and six months ended June 30, 2009 and 2008, respectively.


(3)
            LAND
      USE RIGHT





Land use right is summarized as follows
(in thousands):





June 30,
                      
                      December 31,2009
                      
                      2008Land
      use right
                      
                      $
                      314
                      
                      
                      $
                      315Less
      : accumulated amortization
                      
                      
                      (47
                      )
                      
                      
                      (43
                      )$
                      267
                      
                      
                      $
                      272





Amortization
expense was approximately $2,000 per quarter for the three months and
six months ended June 30, 2009 and 2008, respectively.  Amortization
expense for each of the next 5 years is expected to be $8,000.





(4)
            ACCRUED
      EXPENSES AND OTHER PAYABLES





Accrued expenses and other payables are
summarized as follows (in thousands):





June 30,
                  
                  
                  December 31,2009
                  
                  
                  2008Accrued
      salaries and wages
                  
                  $
                  103
                  
                  
                  $
                  120Accrued
      electricity
                  
                  
                  3
                  
                  
                  
                  4Advertising
      subsidies payables
                  
                  
                  -
                  
                  
                  
                  419106
                  
                  
                  
                  543





(5)
            INVENTORIES





Inventories consist of the following
(in thousands):




June 30,
                  
                  
                  December 31,2009
                  
                  
                  2008Raw
      materials
                  
                  $
                  160
                  
                  
                  $
                  262Work
      in process
                  
                  
                  133
                  
                  
                  
                  23Finished
      goods
                  
                  
                  202
                  
                  
                  
                  229$
                  495
                  
                  
                  $
                  514





(6)
            RELATED
      PARTY TRANSACTIONS





The amount due to a director is
unsecured, interest-free and repayable on demand.





The
Company has been granted the rights to use several newly applied trademarks
which are owned by the Company's Chief Executive Officer. However, the Company
has not utilized the use of these trademarks. The Company's Chief Executive
Officer is in the process of transferring these trademarks to the
Company.


F-10





(7)
            SHORT-TERM
      BORROWINGS





The carrying amounts of the Company’s
borrowings are as follows (in thousands):





June 30,
                                                                                                          
                                                                                                          December 31,2009
                                                                                                          
                                                                                                          2008Interest
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          InterestAmounts
                                                                                                          
                                                                                                          
                                                                                                          Rate
                                                                                                          
                                                                                                          
                                                                                                          Due date
                                                                                                          
                                                                                                          Amounts
                                                                                                          
                                                                                                          Rate
                                                                                                          
                                                                                                          
                                                                                                          Due dateBank
      loan 1
                                                                                                          
                                                                                                          
                                                                                                          293
                                                                                                          
                                                                                                          
                                                                                                          7.43
                                                                                                          %
                                                                                                          
                                                                                                          1/16/2010
                                                                                                          
                                                                                                          
                                                                                                          293
                                                                                                          
                                                                                                          11.21
                                                                                                          %
                                                                                                          
                                                                                                          1/8/2009Bank
      loan 2
                                                                                                          
                                                                                                          
                                                                                                          294
                                                                                                          
                                                                                                          
                                                                                                          7.43
                                                                                                          %
                                                                                                          
                                                                                                          11/30/2009
                                                                                                          
                                                                                                          
                                                                                                          294
                                                                                                          
                                                                                                          7.43
                                                                                                          %
                                                                                                          
                                                                                                          11/30/2009Bank
      loan 3
                                                                                                          
                                                                                                          
                                                                                                          146
                                                                                                          
                                                                                                          
                                                                                                          7.97
                                                                                                          %
                                                                                                          
                                                                                                          3/23/2010
                                                                                                          
                                                                                                          
                                                                                                          -$
                                                                                                          733
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          
                                                                                                          $
                                                                                                          587





As of
June 30, 2009, the short-term borrowings were secured by personal guarantee
granted by the Company’s Chief Executive Officer.





(8)
            INCOME
      TAXES





The provisions for income tax expense
were as follows (in thousands):





Six Months Ended June 30,2009
                              
                              2008PRC
      enterprise income tax - current
                              $
                              
                              2,260
                              
                              $
                              
                              2,044





The
Company is mainly subject to income taxes in the PRC and provision for the PRC
corporate income tax was calculated based on the statutory tax rate of 25% on
taxable income effective from January 1, 2008 pursuant to the PRC Enterprise
Income Tax Law passed by the Tenth National People’s Congress.  For
the six months periods ended June 30, 2009, the income tax provision also
included additional income tax provision for the year ended 2008 because of a
change in management’s estimate of the tax liability for 2008 based on the
information that became available during the period.





The
applicable rates of Hong Kong profit tax for the three months periods ended June
30, 2009 and 2008 were 16.5% and 17.5%, respectively. However, no provision for
Hong Kong profit tax has been made for the three months and six months ended
June 30, 2009 and 2008 as the Company did not conduct any business which
generated taxable profits under the relevant Hong Kong tax laws during the
periods.





PXPF is a
company incorporated as an international company in the BVI and is fully exempt
from BVI’s domestic corporate tax.





As of the
balance sheet dates presented, there were no deferred tax assets or
liabilities.





(9)
            STATUTORY
      RESERVES





Under PRC
regulations, Yinglin Jinduren should pay dividends only out of its accumulated
profits, if any, determined in accordance with PRC GAAP.  In addition,
Yinglin Jinduren is required to set aside at least 10% of its after-tax net
profits each year, if any, to fund the statutory reserves until the balance of
such reserves reaches 50% of Yinglin Jinduren’s registered capital. As of
December 31, 2007, the balance of Yinglin Jinduren’s statutory reserves reached
50% of its registered capital. Thus, no
further profits are required to be set aside for the statutory
reserves.  The statutory reserves are not distributable as cash
dividends to the Company.





(10)
            LEASE
      COMMITMENTS





The
Company leases certain facilities under, non-cancelable leases and year-to-year
leases. These leases are accounted for as operating leases.  Rent
expense amounted to US$11,000 and US$7,000 for the three months ended June 30,
2009 and 2008 respectively.


F-11





Future
minimum payments under long-term, non-cancelable leases as of June 30, 2009 are
as follows:





Future minimum
                    paymentsSix
      months ending December 31, 2009
                  
                  $
                  22,000







There are
no other non-cancelable leases for the year ending December 31, 2010 and
thereafter.




(11)
            BUSINESS
      AND CREDIT CONCENTRATIONS





The
Company operates in the fashion apparel industry and generates all of its sales
in the PRC. The fashion apparel industry is impacted by the general economy.
Changes in the marketplace would significantly affect management’s estimates and
the Company’s performance.





The
Company has the following concentrations of business with each customer
constituting greater than 10% of the Company’s sales:





Three Months Ended June 30,
                  
                  
                  Six Months Ended June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Customers:Customer
      A
                  
                  
                  20.08
                  %
                  
                  
                  27.31
                  %
                  
                  
                  20.14
                  %
                  
                  
                  26.56
                  %Customer
      B
                  
                  
                  13.33
                  %
                  
                  
                  15.80
                  %
                  
                  
                  13.40
                  %
                  
                  
                  12.75
                  %Customer
      C
                  
                  
                  12.18
                  %
                  
                  
                  15.69
                  %
                  
                  
                  12.14
                  %
                  
                  
                  15.28
                  %Customer
      D
                  
                  
                  11.00
                  %
                  
                  
                  12.04
                  %
                  
                  
                  11.02
                  %
                  
                  
                  10.53
                  %Customer
      E
                  
                  
                  10.10
                  %
                  
                  
                  *
                  
                  
                  
                  10.08
                  %
                  
                  
                  *





The
Company has the following concentrations of business with each vendor
constituting greater than 10% of the Company’s purchases:





Three Months Ended June 30,
                  
                  
                  Six Months Ended June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Vendors:Vendor
      A
                  
                  
                  14.84
                  %
                  
                  
                  *
                  
                  
                  
                  *
                  
                  
                  
                  *Vendor
      B
                  
                  
                  11.83
                  %
                  
                  
                  *
                  
                  
                  
                  *
                  
                  
                  
                  *Vendor
      C
                  
                  
                  10.73
                  %
                  
                  
                  *
                  
                  
                  
                  *
                  
                  
                  
                  *Vendor
      D
                  
                  
                  10.11
                  %
                  
                  
                  *
                  
                  
                  
                  14.06
                  %
                  
                  
                  15.38
                  %Vendor
      E
                  
                  
                  10.08
                  %
                  
                  
                  63.29
                  %
                  
                  
                  10.46
                  %
                  
                  
                  51.99
                  %





* Less than 10%





Such
concentrations make the Company vulnerable to a near-term severe impact should
relationships with these customers and/or vendors be
terminated.





(12)
            EARNINGS
      PER SHARE





Basic and
diluted earnings per share (“EPS”) for the three and six months ended June 30,
2009 and 2008 were determined by dividing net income for the three-month and
six-month periods by the respective weighted average number of common shares
outstanding.


F-12





(13)
            BENEFIT
      PLAN





Pursuant
to the relevant regulations of the PRC government, Yinglin Jinduren participates
in a local municipal government retirement benefits scheme (the “Scheme”),
whereby Yinglin Jinduren is required to contribute a certain percentage of the
basic salaries of its employees to the Scheme to fund their retirement benefits.
Contributions under the Scheme are charged to the income statement as incurred.
Yinglin Jinduren’s contributions to the Scheme amounted to $44,000 and $47,000
for the three months ended June 30, 2009 and 2008, respectively, and $88,000 and
$88,000 for the six months ended June 30, 2009 and 2008,
respectively.





(14)
            New
      Accounting Pronouncements




In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133.SFAS No. 161 changes the disclosure requirements for derivative
instruments and hedging activities.  Entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations, (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows and (d) encourages, but does not
require, comparative disclosures for earlier periods at initial adoption. 
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 adoption of this pronouncement did not have a
material impact on the Company’s consolidated financial statements.





In May
2008, the FASB issued SFAS No. 162 The Hierarchy of Generally Accepted
Accounting Principles.  SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy).  The Statement is effective 60
days following the SEC’s approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, The Meaning ofPresent Fairly
in Conformity With Generally Accepted Accounting Principles.  The
adoption of this pronouncement did not have a material impact on the Company’s
consolidated financial statements.





In June
2009, the FASB issued FAS 166, "Accounting for Transfers of Financial Assets" an
amendment of FAS 140.  FAS 166 is intended to improve the relevance,
representational faithfulness and comparability of the information that a
reporting entity provides in its financial statements regarding transfers of
financial assets, including the effects of a transfer on its financial position,
financial performance, and cash flows, and the transferor's continuing
involvement, if any, in the transferred financial assets. This statement must be
applied as of the beginning of the Company’s first annual reporting period that
begins after November 15, 2009. The Company does not expect the adoption of FAS
166 to have a material impact on its results of operations, financial condition
or cash flows.





In June
2009, the FASB issued FAS 167, "Amendments to FASB Interpretation No.
46(R)."  FAS 167 is intended to (1) address the effects on certain
provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation
of Variable Interest Entities,” as a result of the elimination of the qualifying
special-purpose entity concept in FAS 166, and (2) constituent concerns about
the application of certain key provisions of Interpretation 46(R), including
those in which the accounting and disclosures under the Interpretation do not
always provided timely and useful information about an enterprise's involvement
in a variable interest entity.  This statement must be applied as of
the beginning of the Company’s first annual reporting period that begins after
November 15, 2009.  The Company does not expect the adoption of FAS
167 to have a material impact on its results of operations, financial condition
or cash flows.





In June
2009, the FASB issued FAS 168, "The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles."  FAS 168
will become the source of authoritative U.S. generally accepted accounting
principles (GAAP) recognized by the FASB to be applied by nongovernmental
entities.  Rules and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of Federal securities laws are also
sources of authoritative GAAP for SEC registrants. On the effective date of this
statement, the Codification will supersede all then-existing non-SEC accounting
and reporting standards.  All other non-grandfathered non-SEC
accounting literature not included in the Codification will become
non-authoritative.  This statement is effective for financial
statements issued for interim and annual periods ending after September 15,
2009.  The Company does not expect the adoption of FAS 168 to have a
material impact on its results of operations, financial condition or cash
flows.





Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the American Institute of Certified Public Accountants, and
the United States Securities and Exchange Commission did not or are not believed
to have a material impact on the Company's present or future consolidated
financial statements.


F-13


Item
2.    Management’s Discussion and Analysis or Plan of
Operation.
 
 The
following management’s discussion and analysis should be read in conjunction
with our consolidated financial statements and the notes thereto and the other
financial information appearing elsewhere in this item. In addition to
historical information, the following discussion contains certain
forward-looking statements within the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995. These statements relate to our future
plans, objectives, expectations and intentions. These statements may be
identified by the use of words such as “may, “will,” “could,” “expect,,
“anticipate,” “intend,” “believe, “estimate,” “plan,” “predict” and similar
terms or terminology, or the negative of such terms or other comparable
terminology. Although we believe the expectations expressed in these
forward-looking statements are based on reasonable assumptions within the bound
of our knowledge of our business, our actual results could differ materially
from those discussed in these statements. Factors that could contribute to such
differences include, but are not limited to, those discussed in the “Risk
Factors” section of the Company's current report on Form 8-K filed with the SEC
on February 13, 2009.  We undertake no obligation to update publicly
any forward-looking statements for any reason even if new information becomes
available or other events occur in the future.
 
 Our
financial statements are prepared in U.S. Dollars and in accordance with
accounting principles generally accepted in the United States. See “Exchange
Rates” below for information concerning the exchanges rates at which Renminbi
were translated into U.S. Dollars at various pertinent dates and for pertinent
periods.
 
 In
this Form 10-Q, references to “we,” “our, “us,” the "Company”, or the
“Registrant” refer to VLOV Inc., a Nevada corporation, its subsidiary and
affiliated entities.
 
 Overview
 
 VLOV Inc.
(“VLOV” or the “Company”), formerly known as Sino Charter, Inc., was
incorporated in Nevada on October 30, 2006.  Prior to February 13,
2009, the Company was a public reporting “shell company,” as defined in Rule
12b-2 of the Securities Exchange Act of 1934, as amended.  On February
13, 2009, the Company entered into a share exchange transaction with Peng Xiang
Peng Fei Investments Limited (“Peng Xiang”), a British Virgin Islands company,
and acquired its apparel business in the People’s Republic of China (“China” or
“PRC”), which is marketed and distributed apparel under the brand name
“V·LOV.”  The share exchange transaction closed on February 13, 2009,
and Peng Xiang became a wholly-owned subsidiary of the Company.
 
 Peng
Xiang is a holding company that, through its wholly-owned subsidiary, Korea
Jinduren (International) Dress Limited (“Korea Jinduren”), a Hong Kong company,
controls Jinjiang Yinglin Jinduren Fashion Limited (“Yinglin Jinduren”), a PRC
company, by a series of contractual arrangements.  Yinglin Jinduren
holds the government licenses and approvals necessary to operate the apparel
business in China.  Neither the Company nor its direct and indirect
subsidiaries own any equity interests in Yinglin Jinduren, but control and
receive the economic benefits of its business operations through contractual
arrangements. Through Korea Jinduren, the Company has contractual arrangements
with Yinglin Jinduren and its owners to provide consulting and other general
business operation services on an exclusive basis. Through these contractual
arrangements, the Company also has the ability to substantially influence the
daily operations and financial affairs of Yinglin Jinduren. As a result of these
contractual arrangements, which enable the Company to control Yinglin Jinduren
and to receive, through Korea Jinduren, all of its net profits, the Company is
considered the primary beneficiary of Yinglin Jinduren. Accordingly, the Company
consolidates the results, assets and liabilities of Yinglin Jinduren in its
financial statements.
 
 On March
20, 2009, the Company changed its name to “VLOV Inc.” to better reflect the
direction and business of the Company after the share exchange transaction with
Peng Xiang.
 
 Critical
Accounting Policies
 
 Our
management’s discussion and analysis of our financial condition and results of
operations are based on our financial statements that have been prepared in
accordance with accounting principles generally accepted in the United
States.  The preparation of these financial statements requires us to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported net sales and expenses
during the reporting periods.  On an ongoing basis, we evaluate our
estimates and assumptions.  We base our estimates on historical
experience and on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these estimates under
different assumptions or conditions.
 
 While our
significant accounting policies are described in note 1 to our financial
statements under the section above titled “Financial Statements,” we believe
that the following accounting policies are the most critical to aid you in fully
understanding and evaluating this management discussion and
analysis:
  4
 
 Revenue
Recognition
 
 Revenue
is measured at the fair value of the consideration received or receivable and
represents amounts receivable for goods sold and services provided in the normal
course of business, net of discounts and sales related taxes. Revenue from sale
of goods is recognized when the goods are delivered and title has
passed.
 
 Accounts
Receivable
 
 Accounts
receivable, which are unsecured, are stated at the amount the Company expects to
collect. We continuously monitor collections and payments from our customers and
maintain a provision for estimated credit losses based upon historical
experience and any specific customer collection issues that have been
identified. While such credit losses have historically been within our
expectations and the provisions established, we cannot guarantee that we will
continue to experience the same credit loss rates that have been experienced in
the past. As of June 30, 2009, all of the trade receivable balances were aged
less than 90 days and management has determined no allowance for uncollectible
amounts is required.
 
 Depreciation
and Amortization
 
 Property,
plant and equipment are stated at cost less accumulated depreciation and
impairment losses. Depreciation of property, plant and equipment is computed
using the straight-line method based on the following estimated useful
lives:
 
 Buildings
                
                30
      yearsFurniture,
      fixtures and equipment
                
                5
      yearsMotor
      vehicles
                
                5
      yearsOffice
      equipment
                
                5
      yearsPlant
      and machinery
                
                5
      to 15 years
 
 Income
Taxes
 
 The
Company is mainly subject to income taxes in the PRC. While we believe we have
adequately provided for all tax positions, amounts asserted by tax authorities
could be greater or less than our accrued position. The Company has concluded
all PRC corporate income tax matters through fiscal year 2008. We do not
anticipate that total gross unrecognized tax benefits will change significantly
as a result of full or partial settlement of this or other audits within the
next twelve months.
 
 The
Company accounts for income taxes under Statement of Financial Accounting
Standard (SFAS) No. 109, “Accounting for Income Taxes.” Under SFAS No. 109 and
FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN
48), 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
applicable to taxable income in the years in which those temporary differences
are expected to be recovered or settled. Under SFAS No. 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
 
 Foreign
Currency Translation
 
 The
Company’s functional currency is Renminbi (“RMB”) and its reporting currency is
U.S. dollars. The Company’s balance sheet accounts are translated using the
closing exchange rate in effect at the balance sheet date and operating accounts
are translated using the average exchange rate prevailing during the quarter.
Equity accounts are translated using the historical rate as incurred.
Translation gains and losses are deferred and accumulated as a component of
accumulated other comprehensive income in shareholders’ equity. Transaction
gains and losses that arise from exchange rate fluctuations from transactions
denominated in a currency other than the functional currency are included in the
statement of operations as incurred.
  5
 
 Results
of Operations
 
 Three Month Periods Ended June 30,
                    
                    
                    Six Month Periods Ended June 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008(Amounts in thousands, in U.S. Dollars, except for
                      percentages)
                    
                    
                    (Amounts in thousands, in U.S. Dollars, except for
                      percentages)Sales
                    
                    $
                    14,073
                    
                    
                    
                    100.00
                    %
                    
                    $
                    19,405
                    
                    
                    
                    100.00
                    %
                    
                    $
                    31,939
                    
                    
                    
                    100.00
                    %
                    
                    $
                    30,566
                    
                    
                    
                    100.00
                    %Gross
      Profit
                    
                    $
                    5,076
                    
                    
                    
                    36.07
                    %
                    
                    $
                    7,047
                    
                    
                    
                    36.31
                    %
                    
                    $
                    11,475
                    
                    
                    
                    35.93
                    %
                    
                    $
                    11,367
                    
                    
                    
                    37.19
                    %Operating
      Expense
                    
                    $
                    1,752
                    
                    
                    
                    12.45
                    %
                    
                    $
                    1,609
                    
                    
                    
                    8.29
                    %
                    
                    $
                    3,111
                    
                    
                    
                    9.74
                    %
                    
                    $
                    3,166
                    
                    
                    
                    10.36
                    %Income
      From Operations
                    
                    $
                    3,324
                    
                    
                    
                    23.62
                    %
                    
                    $
                    5,438
                    
                    
                    
                    28.02
                    %
                    
                    $
                    8,364
                    
                    
                    
                    26.19
                    %
                    
                    $
                    8,201
                    
                    
                    
                    26.83
                    %Other
      Expenses / (Income)
                    
                    $
                    11
                    
                    
                    
                    0.08
                    %
                    
                    $
                    11
                    
                    
                    
                    0.06
                    %
                    
                    $
                    18
                    
                    
                    
                    0.05
                    %
                    
                    $
                    23
                    
                    
                    
                    0.07
                    %Income
      tax expenses
                    
                    $
                    1,003
                    
                    
                    
                    7.13
                    %
                    
                    $
                    1,357
                    
                    
                    
                    6.99
                    %
                    
                    $
                    2,260
                    
                    
                    
                    7.08
                    %
                    
                    $
                    2,044
                    
                    
                    
                    6.69
                    %Net
      Income
                    
                    $
                    2,310
                    
                    
                    
                    16.41
                    %
                    
                    $
                    4,070
                    
                    
                    
                    20.97
                    %
                    
                    $
                    6,086
                    
                    
                    
                    19.06
                    %
                    
                    $
                    6,134
                    
                    
                    
                    20.07
                    %
 
 Sales for
the three months ended June 30, 2009 were $14,073,000, a decrease of 27.48% from
$19,405,000 for the same period in 2008, while sales for the six months ended
June 30, 2009 were $31,939,000, an increase of 4.49% from $30,566,000 for the
same period of 2008.  We generate revenue primarily from the
production and sale of apparels in China which are sold through 689
Point-of-Sales (“POS”) spread across 10 provinces that are owned and operated by
or for our distributors.  The small increase in our sales for the six
months ended June 30, 2009 was primarily attributable to slow down of sales in
the second quarter due to decelerated consumer demands in the second
quarter.
 
 The
following table sets forth a breakdown of our total sales revenue, by provinces,
for the periods indicated:
 
 Three
      Month Periods Ended June 30,
                                                
                                                
                                                Six
      Month Periods Ended June 30,2009
                                                
                                                
                                                2008
                                                
                                                
                                                
                                                
                                                
                                                2009
                                                
                                                
                                                2008(Amounts
      in thousands, in U.S. Dollars,
                                                  except
      for percentages)
                                                
                                                
                                                (Amounts
      in thousands, in U.S. Dollars,
                                                  except
      for percentages)$
                                                
                                                
                                                % of
      total
                                                  sales revenue
                                                
                                                
                                                $
                                                
                                                
                                                % of total
                                                  sales revenue
                                                
                                                
                                                Growth
                                                  in
      2009
                                                  compared
                                                  with
                                                  2008
                                                
                                                
                                                $
                                                
                                                
                                                % of
      total
                                                  sales revenue
                                                
                                                
                                                $
                                                
                                                
                                                % of total
                                                  sales revenue
                                                
                                                
                                                Growth
                                                  in
      2009
                                                  compared
                                                  with
                                                  2008Beijing
                                                
                                                $
                                                649
                                                
                                                
                                                
                                                4.61
                                                %
                                                
                                                $
                                                707
                                                
                                                
                                                
                                                3.64
                                                %
                                                
                                                
                                                (8.20
                                                )%
                                                
                                                $
                                                1,467
                                                
                                                
                                                
                                                4.59
                                                %
                                                
                                                $
                                                993
                                                
                                                
                                                
                                                3.25
                                                %
                                                
                                                
                                                47.73
                                                %Zhejiang
                                                
                                                
                                                2,826
                                                
                                                
                                                
                                                20.08
                                                %
                                                
                                                
                                                5,299
                                                
                                                
                                                
                                                27.31
                                                %
                                                
                                                
                                                (46.67
                                                )%
                                                
                                                
                                                6,433
                                                
                                                
                                                
                                                20.14
                                                %
                                                
                                                
                                                8,117
                                                
                                                
                                                
                                                26.56
                                                %
                                                
                                                
                                                (20.75
                                                )%Shandong
                                                
                                                
                                                1,549
                                                
                                                
                                                
                                                11.01
                                                %
                                                
                                                
                                                2,336
                                                
                                                
                                                
                                                12.04
                                                %
                                                
                                                
                                                (33.69
                                                )%
                                                
                                                
                                                3,519
                                                
                                                
                                                
                                                11.02
                                                %
                                                
                                                
                                                3,219
                                                
                                                
                                                
                                                10.53
                                                %
                                                
                                                
                                                9.32
                                                %Jiangxi
                                                
                                                
                                                1,714
                                                
                                                
                                                
                                                12.18
                                                %
                                                
                                                
                                                3,045
                                                
                                                
                                                
                                                15.69
                                                %
                                                
                                                
                                                (43.71
                                                )%
                                                
                                                
                                                3,876
                                                
                                                
                                                
                                                12.14
                                                %
                                                
                                                
                                                4,671
                                                
                                                
                                                
                                                15.28
                                                %
                                                
                                                
                                                (17.02
                                                )%Yunnan
                                                
                                                
                                                1,421
                                                
                                                
                                                
                                                10.10
                                                %
                                                
                                                
                                                875
                                                
                                                
                                                
                                                4.51
                                                %
                                                
                                                
                                                62.40
                                                %
                                                
                                                
                                                3,218
                                                
                                                
                                                
                                                10.08
                                                %
                                                
                                                
                                                2,800
                                                
                                                
                                                
                                                9.16
                                                %
                                                
                                                
                                                14.93
                                                %Shanxi
                                                
                                                
                                                1,013
                                                
                                                
                                                
                                                7.20
                                                %
                                                
                                                
                                                1,429
                                                
                                                
                                                
                                                7.36
                                                %
                                                
                                                
                                                (29.11
                                                )%
                                                
                                                
                                                2,299
                                                
                                                
                                                
                                                7.20
                                                %
                                                
                                                
                                                1,828
                                                
                                                
                                                
                                                5.98
                                                %
                                                
                                                
                                                25.77
                                                %Liaoning
                                                
                                                
                                                936
                                                
                                                
                                                
                                                6.65
                                                %
                                                
                                                
                                                898
                                                
                                                
                                                
                                                4.63
                                                %
                                                
                                                
                                                4.23
                                                %
                                                
                                                
                                                2,121
                                                
                                                
                                                
                                                6.64
                                                %
                                                
                                                
                                                1,596
                                                
                                                
                                                
                                                5.22
                                                %
                                                
                                                
                                                32.89
                                                %Hubei
                                                
                                                
                                                1,876
                                                
                                                
                                                
                                                13.33
                                                %
                                                
                                                
                                                3,066
                                                
                                                
                                                
                                                15.80
                                                %
                                                
                                                
                                                (38.81
                                                )%
                                                
                                                
                                                4,281
                                                
                                                
                                                
                                                13.40
                                                %
                                                
                                                
                                                3,898
                                                
                                                
                                                
                                                12.75
                                                %
                                                
                                                
                                                9.83
                                                %Henan
                                                
                                                
                                                1,018
                                                
                                                
                                                
                                                7.23
                                                %
                                                
                                                
                                                832
                                                
                                                
                                                
                                                4.29
                                                %
                                                
                                                
                                                22.36
                                                %
                                                
                                                
                                                2,322
                                                
                                                
                                                
                                                7.27
                                                %
                                                
                                                
                                                1,670
                                                
                                                
                                                
                                                5.46
                                                %
                                                
                                                
                                                39.04
                                                %Guangxi
                                                
                                                
                                                956
                                                
                                                
                                                
                                                6.79
                                                %
                                                
                                                
                                                880
                                                
                                                
                                                
                                                4.53
                                                %
                                                
                                                
                                                8.64
                                                %
                                                
                                                
                                                2,156
                                                
                                                
                                                
                                                6.75
                                                %
                                                
                                                
                                                1,678
                                                
                                                
                                                
                                                5.49
                                                %
                                                
                                                
                                                28.49
                                                %Others
                                                
                                                
                                                115
                                                
                                                
                                                
                                                0.82
                                                %
                                                
                                                
                                                38
                                                
                                                
                                                
                                                0.20
                                                %
                                                
                                                
                                                202.63
                                                %
                                                
                                                
                                                247
                                                
                                                
                                                
                                                0.77
                                                %
                                                
                                                
                                                96
                                                
                                                
                                                
                                                0.32
                                                %
                                                
                                                
                                                157.29
                                                %Total
      Net Sales
                                                
                                                $
                                                14,073
                                                
                                                
                                                
                                                100.00
                                                %
                                                
                                                $
                                                19,405
                                                
                                                
                                                
                                                100.00
                                                %
                                                
                                                
                                                (27.48
                                                )%
                                                
                                                $
                                                31,939
                                                
                                                
                                                
                                                100.00
                                                %
                                                
                                                $
                                                30,566
                                                
                                                
                                                
                                                100.00
                                                %
                                                
                                                
                                                4.49
                                                %
  6
  Cost
of Sales and Gross Profit Margin
 
 The
following table sets forth the components of our cost of sales and gross profit
both in absolute amount and as a percentage of total net sales for the periods
indicated.
 
 Three Month Periods Ended June 30,
                          
                          
                          Six Month Periods Ended June 30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008(Amounts in thousands, in U.S. Dollars, except
                            for percentages)
                          
                          
                          (Amounts in thousands, in U.S. Dollars, except
                            for percentages)Total Net Sales
                          
                          $
                          14,073
                          
                          
                          
                          100.00
                          %
                          
                          $
                          19,405
                          
                          
                          
                          100.00
                          %
                          
                          $
                          31,939
                          
                          
                          
                          100.00
                          %
                          
                          $
                          30,566
                          
                          
                          
                          100.00
                          %O.E.M.
      Finished Goods
                          
                          
                          8,096
                          
                          
                          
                          57.53
                          %
                          
                          
                          8,207
                          
                          
                          
                          42.29
                          %
                          
                          
                          18,673
                          
                          
                          
                          58.46
                          %
                          
                          
                          12,429
                          
                          
                          
                          40.66
                          %Raw
      Materials
                          
                          
                          353
                          
                          
                          
                          2.51
                          %
                          
                          
                          1,651
                          
                          
                          
                          8.51
                          %
                          
                          
                          716
                          
                          
                          
                          2.24
                          %
                          
                          
                          2,837
                          
                          
                          
                          9.28
                          %Labor
                          
                          
                          519
                          
                          
                          
                          3.69
                          %
                          
                          
                          2,367
                          
                          
                          
                          12.20
                          %
                          
                          
                          1,011
                          
                          
                          
                          3.17
                          %
                          
                          
                          3,840
                          
                          
                          
                          12.56
                          %Other
      and Overhead
                          
                          
                          29
                          
                          
                          
                          0.20
                          %
                          
                          
                          133
                          
                          
                          
                          0.68
                          %
                          
                          
                          64
                          
                          
                          
                          0.20
                          %
                          
                          
                          92
                          
                          
                          
                          0.31
                          %Total
      Cost of Sales
                          
                          
                          8,997
                          
                          
                          
                          63.93
                          %
                          
                          
                          12,358
                          
                          
                          
                          63.68
                          %
                          
                          
                          20,464
                          
                          
                          
                          64.07
                          %
                          
                          
                          19,199
                          
                          
                          
                          62.81
                          %Gross
      Profit
                          
                          $
                          5,076
                          
                          
                          
                          36.07
                          %
                          
                          $
                          7,047
                          
                          
                          
                          36.32
                          %
                          
                          $
                          11,475
                          
                          
                          
                          35.93
                          %
                          
                          $
                          11,367
                          
                          
                          
                          37.19
                          %
 
 Raw
materials cost accounted for 2.51% and 2.24% of our total net sales for the
three months and six months periods ended June 30, 2009, respectively, compared
to 8.51% and 9.28% for the same periods ended June 30, 2008, respectively. Labor
cost accounted for 3.69% and 3.17% of our total net sales for the three months
and six months ended June 30 2009, respectively, decreasing 78.07% and 73.67%,
respectively, compared to the same periods in 2008, because the Company had more
reliance on out-sourced O.E.M. goods during the June 30, 2009
periods.
 
 Total
cost of sales for the three months and six months ended June 30, 2009 were
$8,997,000 and $20,464,000, respectively, a decrease of 27.20% from $12,358,000
for the same three-month period in 2008 and an increase of 6.59% from
$19,199,000 for the same six-month period in 2008. As a percentage of total net
sales, our cost of sales increased to 63.93% and 64.07% of total net sales for
the three months and six months ended June 30, 2009 respectively, up slightly
from approximately 63.68% and 62.81% of total net sales for the same three-month
and six-month periods in 2008, respectively. Consequently, gross margin as a
percentage of total net sales decreased slightly to 36.07% and 35.93% for the
three months and six months ended June 30, 2009, respectively, from 36.32% and
37.19% in the same periods in 2008, respectively. Our gross margin decreased
mainly due to a downturn in the economy and intense competition.
 
  7
  The
following table sets forth our total net sales, cost of sales, gross profit and
gross margin of the geographic market segments for the periods
indicated.
 
 Three Months Ended June 30,2009
                                
                                
                                2008Net Sales
                                
                                
                                Cost of
                                  sales
                                
                                
                                Gross
                                  profit
                                
                                
                                Gross
                                  margin
                                
                                
                                Net Sales
                                
                                
                                Cost of
                                  sales
                                
                                
                                Gross
                                  profit
                                
                                
                                Gross
                                  margin(Amounts
      in thousands, in U.S. Dollars, except for percentages)Beijing
                                
                                $
                                649
                                
                                
                                $
                                415
                                
                                
                                $
                                234
                                
                                
                                
                                36.06
                                %
                                
                                $
                                707
                                
                                
                                $
                                461
                                
                                
                                $
                                246
                                
                                
                                
                                34.79
                                %Zhejiang
                                
                                
                                2,826
                                
                                
                                
                                1,810
                                
                                
                                
                                1,016
                                
                                
                                
                                35.95
                                %
                                
                                
                                5,299
                                
                                
                                
                                3,361
                                
                                
                                
                                1,938
                                
                                
                                
                                36.57
                                %Shandong
                                
                                
                                1,549
                                
                                
                                
                                991
                                
                                
                                
                                558
                                
                                
                                
                                36.02
                                %
                                
                                
                                2,336
                                
                                
                                
                                1,495
                                
                                
                                
                                841
                                
                                
                                
                                36.00
                                %Jiangxi
                                
                                
                                1,714
                                
                                
                                
                                1,097
                                
                                
                                
                                617
                                
                                
                                
                                36.00
                                %
                                
                                
                                3,045
                                
                                
                                
                                1,941
                                
                                
                                
                                1,104
                                
                                
                                
                                36.26
                                %Yunnan
                                
                                
                                1,421
                                
                                
                                
                                910
                                
                                
                                
                                511
                                
                                
                                
                                35.96
                                %
                                
                                
                                875
                                
                                
                                
                                584
                                
                                
                                
                                291
                                
                                
                                
                                33.26
                                %Shanxi
                                
                                
                                1,013
                                
                                
                                
                                649
                                
                                
                                
                                364
                                
                                
                                
                                35.93
                                %
                                
                                
                                1,429
                                
                                
                                
                                911
                                
                                
                                
                                518
                                
                                
                                
                                36.25
                                %Liaoning
                                
                                
                                936
                                
                                
                                
                                599
                                
                                
                                
                                337
                                
                                
                                
                                36.00
                                %
                                
                                
                                898
                                
                                
                                
                                572
                                
                                
                                
                                326
                                
                                
                                
                                36.30
                                %Hubei
                                
                                
                                1,876
                                
                                
                                
                                1,201
                                
                                
                                
                                675
                                
                                
                                
                                35.98
                                %
                                
                                
                                3,066
                                
                                
                                
                                1,926
                                
                                
                                
                                1,140
                                
                                
                                
                                37.18
                                %Henan
                                
                                
                                1,018
                                
                                
                                
                                652
                                
                                
                                
                                366
                                
                                
                                
                                35.95
                                %
                                
                                
                                832
                                
                                
                                
                                524
                                
                                
                                
                                308
                                
                                
                                
                                37.02
                                %Guangxi
                                
                                
                                956
                                
                                
                                
                                612
                                
                                
                                
                                344
                                
                                
                                
                                35.98
                                %
                                
                                
                                880
                                
                                
                                
                                560
                                
                                
                                
                                320
                                
                                
                                
                                36.36
                                %Others
                                
                                
                                115
                                
                                
                                $
                                61
                                
                                
                                
                                54
                                
                                
                                
                                46.96
                                %
                                
                                
                                38
                                
                                
                                
                                23
                                
                                
                                
                                15
                                
                                
                                
                                39.47
                                %Total
                                
                                $
                                14,073
                                
                                
                                $
                                8,997
                                
                                
                                $
                                5,076
                                
                                
                                
                                36.07
                                %
                                
                                $
                                19,405
                                
                                
                                $
                                12,358
                                
                                
                                $
                                7,047
                                
                                
                                
                                36.32
                                %
 
 Six Months Ended June 30,2009
                                  
                                  
                                  2008Net Sales
                                  
                                  
                                  Cost of
                                    sales
                                  
                                  
                                  Gross
                                    profit
                                  
                                  
                                  Gross
                                    margin
                                  
                                  
                                  Net Sales
                                  
                                  
                                  Cost of
                                    sales
                                  
                                  
                                  Gross
                                    profit
                                  
                                  
                                  Gross
                                    margin(Amounts
      in thousands, in U.S. Dollars, except for percentages)Beijing
                                  
                                  $
                                  1,467
                                  
                                  
                                  $
                                  940
                                  
                                  
                                  $
                                  527
                                  
                                  
                                  
                                  35.92
                                  %
                                  
                                  $
                                  993
                                  
                                  
                                  $
                                  635
                                  
                                  
                                  $
                                  358
                                  
                                  
                                  
                                  36.05
                                  %Zhejiang
                                  
                                  
                                  6,433
                                  
                                  
                                  
                                  4,124
                                  
                                  
                                  
                                  2,309
                                  
                                  
                                  
                                  35.89
                                  %
                                  
                                  
                                  8,117
                                  
                                  
                                  
                                  5,086
                                  
                                  
                                  
                                  3,031
                                  
                                  
                                  
                                  37.34
                                  %Shandong
                                  
                                  
                                  3,519
                                  
                                  
                                  
                                  2,256
                                  
                                  
                                  
                                  1,263
                                  
                                  
                                  
                                  35.89
                                  %
                                  
                                  
                                  3,219
                                  
                                  
                                  
                                  2,036
                                  
                                  
                                  
                                  1,183
                                  
                                  
                                  
                                  36.75
                                  %Jiangxi
                                  
                                  
                                  3,876
                                  
                                  
                                  
                                  2,486
                                  
                                  
                                  
                                  1,390
                                  
                                  
                                  
                                  35.86
                                  %
                                  
                                  
                                  4,671
                                  
                                  
                                  
                                  2,944
                                  
                                  
                                  
                                  1,727
                                  
                                  
                                  
                                  36.97
                                  %Yunnan
                                  
                                  
                                  3,218
                                  
                                  
                                  
                                  2,063
                                  
                                  
                                  
                                  1,155
                                  
                                  
                                  
                                  35.89
                                  %
                                  
                                  
                                  2,800
                                  
                                  
                                  
                                  1,761
                                  
                                  
                                  
                                  1,039
                                  
                                  
                                  
                                  37.11
                                  %Shanxi
                                  
                                  
                                  2,299
                                  
                                  
                                  
                                  1,474
                                  
                                  
                                  
                                  825
                                  
                                  
                                  
                                  35.89
                                  %
                                  
                                  
                                  1,828
                                  
                                  
                                  
                                  1,154
                                  
                                  
                                  
                                  674
                                  
                                  
                                  
                                  36.87
                                  %Liaoning
                                  
                                  
                                  2,121
                                  
                                  
                                  
                                  1,360
                                  
                                  
                                  
                                  761
                                  
                                  
                                  
                                  35.88
                                  %
                                  
                                  
                                  1,596
                                  
                                  
                                  
                                  1,006
                                  
                                  
                                  
                                  590
                                  
                                  
                                  
                                  36.97
                                  %Hubei
                                  
                                  
                                  4,281
                                  
                                  
                                  
                                  2,745
                                  
                                  
                                  
                                  1,536
                                  
                                  
                                  
                                  35.88
                                  %
                                  
                                  
                                  3,898
                                  
                                  
                                  
                                  2,433
                                  
                                  
                                  
                                  1,465
                                  
                                  
                                  
                                  37.58
                                  %Henan
                                  
                                  
                                  2,322
                                  
                                  
                                  
                                  1,488
                                  
                                  
                                  
                                  834
                                  
                                  
                                  
                                  35.92
                                  %
                                  
                                  
                                  1,670
                                  
                                  
                                  
                                  1,036
                                  
                                  
                                  
                                  634
                                  
                                  
                                  
                                  37.96
                                  %Guangxi
                                  
                                  
                                  2,156
                                  
                                  
                                  
                                  1,382
                                  
                                  
                                  
                                  774
                                  
                                  
                                  
                                  35.90
                                  %
                                  
                                  
                                  1,678
                                  
                                  
                                  
                                  1,049
                                  
                                  
                                  
                                  629
                                  
                                  
                                  
                                  37.49
                                  %Others
                                  
                                  
                                  247
                                  
                                  
                                  
                                  146
                                  
                                  
                                  
                                  101
                                  
                                  
                                  
                                  40.89
                                  %
                                  
                                  
                                  96
                                  
                                  
                                  
                                  59
                                  
                                  
                                  
                                  37
                                  
                                  
                                  
                                  38.54
                                  %Total
                                  
                                  $
                                  31,939
                                  
                                  
                                  $
                                  20,464
                                  
                                  
                                  $
                                  11,475
                                  
                                  
                                  
                                  35.93
                                  %
                                  
                                  
                                  30,566
                                  
                                  
                                  $
                                  19,199
                                  
                                  
                                  $
                                  11,367
                                  
                                  
                                  
                                  37.19
                                  %
  Overall
gross margin for the three months and six months ended June 30, 2009 was 36.07%
and 35.93%, respectively, which decreased slightly from 36.32% and 37.19% for
the same periods in 2008, respectively, due to the economic downturn and fierce
competition.
  8
  Selling,
General and Administrative Expenses
 
 Three Months Ended June 30,
                      
                      
                      Six Months Ended June 30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008$
                      
                      
                      % of
                        Total
                        Net Sales
                      
                      
                      $
                      
                      
                      % of
                        Total
                        Net Sales
                      
                      
                      $
                      
                      
                      % of
                        Total
                        Net Sales
                      
                      
                      $
                      
                      
                      % of
                        Total
                        Net Sales(Amounts in thousands, in U.S. Dollars,
                        except forpercentages)
                      
                      
                      (Amounts in thousands, in U.S. Dollars,
                        except forpercentages)Gross Profit
                      
                      $
                      5,076
                      
                      
                      
                      36.07
                      %
                      
                      $
                      7,047
                      
                      
                      
                      36.32
                      %
                      
                      $
                      11,475
                      
                      
                      
                      35.93
                      %
                      
                      $
                      11,367
                      
                      
                      
                      37.19
                      %Operating
      Expenses:Selling
      Expenses
                      
                      
                      1,314
                      
                      
                      
                      9.34
                      %
                      
                      
                      787
                      
                      
                      
                      4.06
                      %
                      
                      
                      2,059
                      
                      
                      
                      6.45
                      %
                      
                      
                      1,581
                      
                      
                      
                      5.17
                      %General
      and Administrative Expenses
                      
                      
                      438
                      
                      
                      
                      3.11
                      %
                      
                      
                      822
                      
                      
                      
                      4.24
                      %
                      
                      
                      1,052
                      
                      
                      
                      3.29
                      %
                      
                      
                      1,585
                      
                      
                      
                      5.19
                      %1,752
                      
                      
                      
                      12.45
                      %
                      
                      
                      1,609
                      
                      
                      
                      8.30
                      %
                      
                      
                      3,111
                      
                      
                      
                      9.74
                      %
                      
                      
                      3,166
                      
                      
                      
                      10.36
                      %Income
      from Operations
                      
                      $
                      3,324
                      
                      
                      
                      23.62
                      %
                      
                      $
                      5,438
                      
                      
                      
                      28.02
                      %
                      
                      $
                      8,364
                      
                      
                      
                      26.19
                      %
                      
                      $
                      8,201
                      
                      
                      
                      26.83
                      %
  Selling
expenses for the three months ended June 30, 2009 increased by 66.96% to
$1,314,000 as compared to the same period in 2008, and increased by 30.23% to
$2,059,000 for the six months ended June 30, 2009 as compared to for the same
periods in 2008.   The increase was mainly due to an increase in
advertising expenses and exhibition expenses for our sales fair conducted in May
2009.
 
 General
and administrative expenses decreased by 46.72% from $822,000 for the three
months ended June 30, 2008 to $438,000 for the same period in 2009, and
decreased by 33.63% from $1,585,000 for the six month ended June 30, 2008 to
$1,052,000 for the same period in 2009.  The decreases were mainly due
to decrease in research & development expenses.
 
 Interest
Expenses
  Interest
expenses were $14,000 and $28,000, respectively, for the three months and six
months ended June 30, 2009 compared to $16,000 and $32,000, respectively, for
the same three-month and six-month periods in 2008. There were no significant
changes in outstanding amount of bank loan and interest rate, thus, the interest
expenses remain fairly constant. The slight decrease was mainly due to the
change in exchange rates between US dollars and RMB period from 2008 to
2009.
 
 Income
Tax Expenses
  Income
tax expenses for the three months and six months ended June 30, 2009 amounted to
$1,003,000 and $1,357,000, respectively, compared to $2,260,000 and $2,044,000
respectively, for the same three-month and six-month periods in
2008.  Our statutory income tax rates were 25% in 2008 and 2009. The
decrease in income tax expenses was attributable to a decrease in pre-tax
income.  Effective tax rates for the three-month and six-month periods
ended June 30, 2009 were greater than 25% because of a change in management’s
estimate of the tax liability for 2008 based on the information that became
available during the period.
 
 Net
Income
 
 Net
income for the three months and six months ended June 30, 2009 were $2,310,000
and $6,086,000 respectively, a decrease of 43% from $4,070,000 for the same
three-month period in 2008, and a decrease of 0.78% from $6,134,000 for the same
six-month period in 2008. This decrease was mainly due to the economic downturn
and fierce competition.
 
 Liquidity
and Capital Resources
 
 As of
June 30, 2009, we had cash and cash equivalents of $2,286,000, other current
assets of $10,549,000 and current liabilities of $5,609,000. We presently
finance our operations primarily from the cash flows from our operations, and we
anticipate that this will continue to be our primary source of funds to finance
our short-term cash needs. If we require additional capital to expand or enhance
our existing facilities, we will consider debt or equity offerings or
institutional borrowing as potential means of financing.
 
 Net cash
provided by operating activities for the six months ended June 30, 2009 was
$4,323,000 compared with net cash provided by operating activities of $3,276,000
for the same period in 2008. This increase was mainly attributable to increase
in accounts payable and decrease in accounts receivable.
  9
 
 There was
no cash used in investing activities for the six months ended June 30, 2009,
compared with $52,000 used in investing activities for the same period in 2008.
This decrease in net cash for investing activities was mainly because we did not
purchase any fixed assets during the six months ended June 30,
2009.
 
 Net cash
used in financing activities was $4,895,000 for the six months ended June 30,
2009, compared with $2,872,000 net cash used in financing activities for the
same period in 2008. The increase in net cash used in financing activities was
mainly due to payment of dividend to the private shareholders prior to the
reverse merger.
 
 As of
June 30, 2009, our inventories had decreased to $495,000 compared with $851,000
as of June 30, 2008, and finished goods decreased to $202,000 as of June 30,
2009 from $465,000 as of June 30, 2008, resulting from more reliance on O.E.M
products.
  As of
June 30, 2009, we had accounts receivable of $10,039,000, compared with
$8,945,000 as of June 30, 2008. The accounts receivable turnover ratio decreased
to 45.22 days as of June 30, 2009 from 46.14 days as of June 30,
2008.
 
 As of
June 30, 2009, we had accounts payables of $3,407,000, compared with $2,453,000
as of June 30, 2008. The increase was mainly due to an increase in purchase to
meet the sales order.
 
 As of
June 30, 2009, we had accrued expenses and other payables of $106,000, compared
with $804,000 as of June 30, 2008. The decrease was mainly due to a decrease in
the number of distributors.
  Contractual
Obligations and Off-Balance Sheet Arrangements
 
 Contractual
Obligations
 
 We have
certain fixed contractual obligations and commitments that include future
estimated payments. Changes in our business needs, cancellation provisions,
changing interest rates, and other factors may result in actual payments
differing from the estimates. We cannot provide certainty regarding the timing
and amounts of payments. We present below a summary of the most significant
assumptions used in our determination of amounts presented in the tables in
order to assist in the review of this information within the context of our
consolidated financial position, results of operations, and cash
flows.
 
 The
following tables summarize our contractual obligations as of June 30, 2009, and
the effect that these obligations are expected to have on our liquidity and cash
flows in future periods.
 
 Payments Due by PeriodTotal
                              
                              Less than 1
                                year
                              
                              1 Year +(in thousands of dollars)Contractual
      Obligations:Total
      Indebtedness
                              
                              $
                              733
                              
                              
                              $
                              733
                              
                              
                              $
                              -Operating
      Leases
                              
                              
                              22
                              
                              
                              
                              22
                              
                              
                              
                              -Total
      Contractual Obligations:
                              
                              $
                              755
                              
                              
                              $
                              755
                              
                              
                              $
                              -
  Total
indebtedness consists of installment loans from financial institutions in the
PRC.
 
 Operating
lease amounts include minimum lease payments under our non-cancelable operating
leases for office facilities, as well as limited computer and office equipment
that we utilize under certain lease arrangements.
 
 Off-Balance
Sheet Arrangements
 
 We have
not entered into any other financial guarantees or other commitments to
guarantee the payment obligations of any third parties. We have not entered into
any derivative contracts that are indexed to our shares and classified as
shareholder’s equity or that are not reflected in our consolidated financial
statements. Furthermore, we do not have any retained or contingent interest in
assets transferred to an unconsolidated entity that serves as credit, liquidity
or market risk support to such entity. We do not have any variable interest in
any unconsolidated entity that provides financing, liquidity, market risk or
credit support to us or engages in leasing, hedging or research and development
services with us.
  10
  Item
3. Quantitative
and Qualitative Disclosures About Market Risk
 
 Currency
Risk
 
 All of
the Company’s business is carried out in the PRC and uses the RMB as its only
functional currency. Hence, the effect of the fluctuations of the RMB exchange
rate relative to other currencies is considered minimal to our business
operations. However, we use the U.S. dollar for financial reporting purposes and
therefore, fluctuations in the exchange rate between the RMB and the U.S. dollar
will result in increases or decreases in other comprehensive income or
loss.  Conversion of RMB into foreign currencies is regulated by The
People’s Bank of China through a unified floating exchange rate system. Although
the PRC government has stated its intention to support the value of RMB, there
can be no assurance that such exchange rate will not again become volatile or
that RMB will not strengthen or devalue significantly against the U.S.
dollar.  Exchange rate fluctuations may adversely affect the value, in
U.S. dollar terms, of our net assets and income derived from our operations in
the PRC.
 
 Credit
Risk
 
 The
Company’s credit risks are primarily attributable to trade receivables and bank
balances.
 
 The
Company’s maximum exposure to credit risk in the event of the failure of
counterparties to perform their obligations as at June 30, 2009 in relation to
each class of recognized financial assets is the carrying amount of those assets
as stated in the consolidated balance sheets. In order to minimize credit risk,
management reviews the accounts receivable aging and adjusts the allowance based
on historical experience, financial condition of customers and other relevant
current economic factors. As of June 30, 2009, all of the trade receivable
balances were aged less than 90 days and management has determined that no
allowance for uncollectible amounts is required.
 
 The
Company’s bank balances and cash are deposited with banks of high credit rating
and the Company has limited the exposure to any single financial institution.
The credit risk on liquid funds is limited because the counterparties are banks
with good credit-rating. The Company has no significant concentration of credit
risks as its exposure is spread over a number of counterparties and
customers.
 
 Item
4.               Controls
and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 As of
June 30, 2009, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended.  Based upon
that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of the
end of the applicable period to ensure that the information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act (i) is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms, and (ii) is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosures.
 
 Changes
in Internal Control over Financial Reporting
 
 There was
no change in our internal control over financial reporting during the quarter
ended June 30, 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
  11
  PART
II - OTHER INFORMATION
 
 Item
1. Legal
Proceedings.
 
 None
 
 Item
1A.            Risk
Factors.
 
 There
have been no material changes in our risk factors from those disclosed in Part
II, Item 1A, of our Quarterly Report on Form 10-Q as of and for the quarter end
March 31, 2009.
 
 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 Securities Holders.
  None
 
 Item
5. Other
Information.
 
 None
  12
 
 Item
6. Exhibits.
 
 Exhibit
                Number
              
              Description2.1
              
              Share
      Exchange Agreement (3)3.1
              
              Articles
      of Incorporation of Sino Charter, Inc. (1)3.2
              
              Articles
      of Merger filed with the Secretary of State of Nevada on March 4, 2009 and
      which is effective March 20, 2009 (4)3.3
              
              Certificate
      of Correction filed with the Secretary of State of Nevada on March 6, 2009
      (4)3.4
              
              Bylaws
      of Sino Charter, Inc. (1)3.5
              
              Amendment
      to the Bylaws of Sino Charter, Inc. (3)4.1
              
              Specimen
      Stock Certificate of Sino Charter, Inc. (1)31.1
              
              Certifications
      pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act
      of 1934, as amended *31.2
              
              Certifications
      pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act
      of 1934, as amended *32.1
              
              Certifications
      pursuant to 18 U.S.C. Section 1350 *32.2
              
              Certifications
      pursuant to 18 U.S.C. Section 1350 *99.1
              
              Consulting
      Services Agreement (3)99.2
              
              Operating
      Agreement (3)99.3
              
              Equity
      Pledge Agreement (3)99.4
              
              Option
      Agreement (3)99.5
              
              Voting
      Rights Proxy Agreement (3)99.6
              
              Audited
      Committee Charter (2)99.7
              
              Disclosure
      Committee Charter (2)
 
 * Filed
Herewith.
 
 (1)
Previously filed with our Registration Statement on Form SB-2 on February 9,
2007.
 (2)
Previously filed with our Annual Report on Form 10-K on March 7,
2008.
 (3)
Previously filed with our Current Report on Form 8-K on February 13,
2009.
 (4)
Previously filed with our Current Report on Form 8-K on March 20,
2009.
 (5)
Previously filed with our Current Report on Form 8-K on April 15,
2009.
 (6)
Previously filed with our Annual Report on Form 10-Q on May 20,
2009.
  13
 
 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.
 
 VLOV
      INC.(Registrant)Date: August
      13, 2009
                  By:
                  /s/
      Qingqing WuQingqing
      WuChief
      Executive Officer
  14