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:March
31, 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.


(Exact
name of registrant as specified in its charter)




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


(Registrant’s
telephone number, including area code)





Sino
Charter, Inc.


(Former
name, former address and former fiscal year, if changed since last
report)




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
May 6, 2009.











TABLE
OF CONTENTS


TO
QUARTERLY REPORT ON FORM 10-Q


FOR
QUARTER ENDED MARCH 31, 2009





PART
      I
                  FINANCIAL
      INFORMATION
                  PageItem
      1.
                  Financial
      Statements (unaudited)
                  F-1Consolidated
      Balance Sheet
                  F-1Consolidated
      Statements of Income (Operations) and Other Comprehensive
      Income
                  F-2Consolidated
      Statements of Cash Flows
                  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
                  9Item
      4T.
                  Controls
      and Procedures
                  9PART
      II
                  OTHER
      INFORMATIONItem
      1.
                  Legal
      Proceedings
                  10Item
      1A.
                  Risk
      Factors
                  10Item
      2.
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  21Item
      3.
                  Defaults
      Upon Senior Securities
                  21Item
      4.
                  Submission
      of Matters to a Vote of Security Holders
                  21Item
      5.
                  Other
      Information
                  21Item
      6.
                  Exhibits
                  22Signatures
                  23





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.  As used in this Form 10-Q, unless the context
requires otherwise, “we” or “us” or “Registrant” or the “Company” means VLOV
Inc. and its subsidiaries.





3





PART
I - FINANCIAL INFORMATION





Item
      1.
            Financial
      Statements





VLOV,
INC.


CONSOLIDATED
BALANCE SHEETS


(Amounts
in thousands)


March 31, 2009
                      
                      
                      December 31,(unaudited)
                      
                      
                      2008ASSETSCurrent
      Assets:Cash
      and cash equivalents
                      
                      $
                      1,204
                      
                      
                      $
                      2,863Pledged
      bank deposits
                      
                      
                      88
                      
                      
                      
                      88Accounts
      receivable
                      
                      
                      9,460
                      
                      
                      
                      7,843Inventories
                      
                      
                      489
                      
                      
                      
                      514Prepaid
      expenses
                      
                      
                      22
                      
                      
                      
                      -Total
      current assets
                      
                      
                      11,263
                      
                      
                      
                      11,308Property,
      plant and equipment, net
                      
                      
                      1,043
                      
                      
                      
                      1,067Land
      use rights
                      
                      
                      269
                      
                      
                      
                      272TOTAL
      ASSETS
                      
                      $
                      12,575
                      
                      
                      $
                      12,647LIABILITIES
      AND EQUITYCurrent
      Liabilities:Accounts
      payable
                      
                      $
                      3,522
                      
                      
                      $
                      2,040Accrued
      expenses and other payables
                      
                      
                      551
                      
                      
                      
                      543Amount
      due to a director
                      
                      
                      1
                      
                      
                      
                      2Bills
      payable
                      
                      
                      -
                      
                      
                      
                      293Short-term
      bank loans
                      
                      
                      733
                      
                      
                      
                      587Income
      taxes payable
                      
                      
                      1,574
                      
                      
                      
                      1,613Total
      current liabilities
                      
                      
                      6,381
                      
                      
                      
                      5,078Commitments
                      
                      
                      -
                      
                      
                      
                      -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 March 31, 2009 and 2008,
      respectively
                      
                      
                      160
                      
                      
                      
                      146Additional
      paid-up capital
                      
                      
                      1,078
                      
                      
                      
                      1,091Statutory
      reserve
                      
                      
                      913
                      
                      
                      
                      913Retained
      earnings
                      
                      
                      3,493
                      
                      
                      
                      4,876Accumulated
      other comprehensive income
                      
                      
                      550
                      
                      
                      
                      543Total
      stockholders' equity
                      
                      
                      6,194
                      
                      
                      
                      7,569TOTAL
      LIABILITIES AND  STOCKHOLDERS' EQUITY
                      
                      $
                      12,575
                      
                      
                      $
                      12,647





See
accompanying notes to consolidated financial statements




F-1





VLOV,
INC.


CONSOLIDATED
STATEMENTS OF INCOME


(Amounts
in thousands, except per share data)




(Unaudited)


Three Months Ended March 31,2009
                  
                  
                  2008Net
      sales
                  
                  $
                  17,865
                  
                  
                  $
                  11,273Cost
      of sales
                  
                  
                  11,467
                  
                  
                  
                  6,915Gross
      profit
                  
                  
                  6,398
                  
                  
                  
                  4,358Operating
      expenses:Selling
      expenses
                  
                  
                  745
                  
                  
                  
                  794General
      and administrative expenses
                  
                  
                  616
                  
                  
                  
                  7641,361
                  
                  
                  
                  1,558Income
      from operations
                  
                  
                  5,037
                  
                  
                  
                  2,800Other
      income (expenses):Interest
      income
                  
                  
                  7
                  
                  
                  
                  3Interest
      expense
                  
                  
                  (14
                  )
                  
                  
                  (15
                  )(7
                  )
                  
                  
                  (12
                  )Income
      before provision for income taxes
                  
                  
                  5,030
                  
                  
                  
                  2,788Provision
      for income taxes
                  
                  
                  1,257
                  
                  
                  
                  697Net
      income
                  
                  
                  3,773
                  
                  
                  
                  2,091Other
      comprehensive income:Foreign
      currency translation adjustment
                  
                  
                  16
                  
                  
                  
                  146Comprehensive
      income
                  
                  $
                  3,789
                  
                  
                  $
                  2,237Basic
      and diluted net earnings per share
                  
                  $
                  0.25
                  
                  
                  $
                  0.14Weighted
      average number of common shares outstanding, basic and
    diluted
                  
                  
                  15,312,000
                  
                  
                  
                  14,560,000





See
accompanying notes to consolidated financial statements





F-2





VLOV,
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Amounts
in thousands)




(Unaudited)


Three Months Ended March 31,2009
                      
                      
                      2008Cash
      flows from operating activities:Net
      income
                      
                      $
                      3,773
                      
                      
                      $
                      2,091Adjustments
      to reconcile net income to net cash  provided by operating
      activities:Depreciation
      and amortization
                      
                      
                      26
                      
                      
                      
                      24(Increase)
      decrease in assets:Accounts
      receivables
                      
                      
                      (1,627
                      )
                      
                      
                      (766
                      )Inventories
                      
                      
                      23
                      
                      
                      
                      1,214Prepaid
      expenses
                      
                      
                      (22
                      )
                      
                      
                      119Increase
      (decrease) in liabilities:Accounts
      payable
                      
                      
                      1,485
                      
                      
                      
                      (536
                      )Bills
      payable, accrued expenses and other payables
                      
                      
                      (284
                      )
                      
                      
                      (28
                      )Income
      and other tax payables
                      
                      
                      (47
                      )
                      
                      
                      (2,294
                      )Net
      cash provided by operating activities
                      
                      
                      3,327
                      
                      
                      
                      (176
                      )Cash
      flows from investing activities:Purchases
      of property, plant and equipment
                      
                      
                      -
                      
                      
                      
                      (50
                      )Disposals
      of property, plant and equipment
                      
                      
                      -
                      
                      
                      
                      7Net
      cash (used in) investing activities
                      
                      
                      -
                      
                      
                      
                      (43
                      )Cash
      flows from financing activities:Proceeds
      from debt financing
                      
                      
                      440
                      
                      
                      
                      280Payments
      of short-term debt
                      
                      
                      (293
                      )
                      
                      
                      (280
                      )Payments
      of dividend *
                      
                      
                      (5,128
                      )
                      
                      
                      -Net
      cash (used in) financing activities
                      
                      
                      (4,981
                      )
                      
                      
                      -Effect
      of exchange rate changes
                      
                      
                      (5
                      )
                      
                      
                      108Net
      decrease in cash and cash equivalents
                      
                      
                      (1,659
                      )
                      
                      
                      (111
                      )Cash
      and cash equivalents, beginning of year
                      
                      
                      2,863
                      
                      
                      
                      2,758Cash
      and cash equivalents, end of year
                      
                      $
                      1,204
                      
                      
                      $
                      2,647Non-cash
      transactionsInvestment
      cost in a subsidiary
                      
                      $
                      (1
                      )
                      
                      $
                      -Supplemental
      disclosure of cash flow information:Interest
      paid
                      
                      $
                      14
                      
                      
                      $
                      15Income
      taxes paid
                      
                      $
                      571
                      
                      
                      $
                      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.”  On February 13, 2009, the
Company 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 the Company (the legal
acquirer) will, in substance, be those of PXPF (the accounting acquirer), with
the assets and liabilities, and revenues and expenses, of the Company being
included effective from the date of the share exchange transaction. The Company
changed its name to “VLOV, Inc.” on March 20, 2009 in connection with the share
exchange agreement.





From and
after the share exchange transaction, the Company’s business is 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 (“Jinduren Fashion”), a
company organized in the PRC which the Company controls. The Company controls
Jinduren Fashion through a series of contractual arrangements between Korea
Jinduren (International) Dress Limited (“Korea Jinduren”), a Hong Kong company
and the direct wholly-owned subsidiary of PXPF, and Jinduren Fashion. The
contractual arrangements between Korea Jinduren and Jinduren Fashion enable the
Company to substantially influence the daily operations and financial affairs of
Jinduren Fashion, appoint its senior executives and approve all matters
requiring shareholder approval. As a result of these contractual arrangements,
which obligates Korea Jinduren to absorb a majority of the risk of loss
from the activities of Jinduren Fashion and enables Korea Jinduren to receive a
majority of Jinduren Fashion’s expected residual returns, the Company accounts
for Jinduren Fashion 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, the Company
consolidates the results, assets and liabilities of Jinduren
Fashion.





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 SEC in 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, Jinduren
      Fashion. 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 March 31, 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 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.





(j)
            Land
      use rights





All land
in the People’s Republic of China is owned by the government and cannot be sold
to any individual or company.However, the government grants the user a “land use
right” to use the land.





The
Company acquired land use rights on March 25, 2004 for a total amount of
US$259,000. These land use right are for 50 years and expire in
2054.





Land use
rights are 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.





Land use
rights, which are considered intangible assets, of the Company are reviewed at
least annually to determine whether their 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  March
31, 2009, the Company expects these assets to be 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 March 31,
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 gains for the three
months ended March 31, 2009 and 2008 were $16,000 and $146,000, 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 expense for the three
months ended March 31, 2009 and 2008 were approximately $696,000 and $761,000,
respectively. Advertising costs include advertising subsidy expense which is
accrued based on the terms in effect with distributors and paid when all
attaching conditions will be 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 $413,000
and $626,000 for the three months ended March 31 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.





F-7





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.





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.





F-8





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. FSP 107-1 is effective
for interim reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009.  The Company does
not expect the adoption of FSP 107-1 to have any impact on the Company’s
consolidated financial statement presentation or disclosures.





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):


March 31,
                    
                    
                    December 31,2009
                    
                    
                    2008Buildings
                    
                    $
                    913
                    
                    
                    $
                    914Furniture,
      fixtures and equipment
                    
                    
                    84
                    
                    
                    
                    24Motor
      vehicles
                    
                    
                    196
                    
                    
                    
                    196Office
      equipment
                    
                    
                    24
                    
                    
                    
                    84Plant
      and machinery
                    
                    
                    235
                    
                    
                    
                    235Total
      property, plant and equipment
                    
                    
                    1,452
                    
                    
                    
                    1,453Less:
      accumulated depreciation
                    
                    
                    (409
                    )
                    
                    
                    (386
                    )$
                    1,043
                    
                    
                    $
                    1,067




Depreciation
and amortization expense was approximately $24,000, and $22,000 for the three
months ended March 31, 2009 and 2008, respectively.





(3)
            LAND
      USE RIGHT





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




March 31,
                    
                    
                    December 31,2009
                    
                    
                    2008Land
      use right
                    
                    $
                    314
                    
                    
                    $
                    315Less
      : accumulated amortization
                    
                    
                    (45
                    )
                    
                    
                    (43
                    )$
                    269
                    
                    
                    $
                    272





Amortization
expense was approximately $2,000 and $2,000 for the three months ended March 31,
2009 and 2008, respectively.  Amortization expense in each of the next
5 years is expected to be $10,000.





F-9





(4)
            ACCRUED
      EXPENSES AND OTHER PAYABLES





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




March 31,
                    
                    
                    December 31,2009
                    
                    
                    2008Accrued
      salaries and wages
                    
                    $
                    122
                    
                    
                    $
                    120Accrued
      electricity
                    
                    
                    10
                    
                    
                    
                    4Receipts
      in advance
                    
                    
                    -
                    
                    
                    
                    -Advertising
      subsidies payables
                    
                    
                    419
                    
                    
                    
                    419Other
      payables
                    
                    
                    -
                    
                    
                    
                    -551
                    
                    
                    
                    543





(5)
            INVENTORIES





Inventories consist of the following
(in thousands):




March 31,
                      
                      
                      December 31,2009
                      
                      
                      2008Raw
      materials
                      
                      $
                      167
                      
                      
                      $
                      262Work
      in process
                      
                      
                      202
                      
                      
                      
                      23Finished
      goods
                      
                      
                      120
                      
                      
                      
                      229$
                      489
                      
                      
                      $
                      514




(6)
            RELATED
      PARTY TRANSACTIONS





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





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





(7)
            SHORT-TERM
      BORROWINGS





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




March 31,
            
            
            December 31,2009
            
            
            2008Interest
            
            
            
            
            
            InterestAmounts
            
            
            Rate
            
            
            Amounts
            
            
            RateBank
      loan
            
            $
            733
            
            
            
            7.611
            %
            
            $
            587
            
            
            
            9.320
            %





As of
March 31, 2009, the short-term borrowings were secured by personal guarantee
granted by Qingqing Wu, a director of the Company.





F-10





(8)
            INCOME
      TAXES





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


Three Months Ended March 31,2009
                          
                          
                          2008PRC
      enterprise income tax - current
                          
                          $
                          1,257
                          
                          
                          $
                          697





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
the taxable income effective from January 1, 2008 pursuant to the PRC Enterprise
Income Tax Law (the “New Law”) passed by the Tenth National People’s
Congress.





The
applicable rates of Hong Kong profit tax for the three months periods ended
March 31, 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 ended
March 31, 2009 and 2008 as the Company did not conduct any business which
generated profits taxable 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 Domestic Corporate Tax of the BVI.





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





(9)
            STATUTORY
      RESERVES





Under PRC
regulations, Jinduren Fashion should pay dividends only out of its accumulated
profits, if any, determined in accordance with PRC GAAP.  In addition,
it is required to set aside at least 10% of their after-tax net profits each
year, if any, to fund the statutory reserves until the balance of the reserves
reaches 50% of their registered capital. As of December 31, 2007, the statutory
reserve balance of the Company reached 50% of its registered capital, thus,
there are no further profits to be set aside for the reserve
subsequently.  The statutory reserves are not distributable in the
form of cash dividends to the Company but can be used to make up prior year
cumulative losses.





(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 March 31,
2009 and 2008 respectively.





Future
minimum payments under long-term, non-cancelable leases as of the three months
ended March 31, 2009 are as follows:




Future minimum
                            paymentsNine
      months ended December 31, 2009
                          
                          $
                          33,000




There are
no other non-cancelable leases for the year ended 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 March
31,2009
                  
                  
                  2008Customers:Customer
      A
                  
                  
                  20.19
                  %
                  
                  
                  25.31
                  %Customer
      B
                  
                  
                  12.11
                  %
                  
                  
                  14.60
                  %Customer
      C
                  
                  
                  10.06
                  %
                  
                  
                  16.93
                  %Customer
      D
                  
                  
                  13.46
                  %
                  
                  
                  *Customer
      E
                  
                  
                  11.03
                  %
                  
                  
                  *





F-11





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





Three Months Ended March 31,2009
                    
                    
                    2008Vendors:Vendor
      A
                    
                    
                    10.74
                    %
                    
                    
                    33.49
                    %Vendor
      B
                    
                    
                    11.15
                    %
                    
                    
                    *Vendor
      C
                    
                    
                    17.00
                    %
                    
                    
                    34.74
                    %Vendor
      D
                    
                    
                    *
                    
                    
                    
                    11.16
                    %





* Less than 10%





The
concentration makes the Company vulnerable to a near-term severe impact should
the relationships be terminated.





(12)
            EARNINGS
      PER SHARE





Basic and
diluted earnings per share (“EPS”) for the three months ended March 31, 2009 and
2008 were determined by dividing net income for the three-month periods by the
weighted average number of common shares outstanding.





(13)
            BENEFIT
      PLAN





Pursuant
to the relevant regulations of the PRC government, Jinduren Fashion participates
in a local municipal government retirement benefits scheme (the “Scheme”),
whereby Jinduren Fashion 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.
Its contributions to the plan amounted to $43,000 and $41,000 for the three
months ended March 31, 2009 and 2008.





F-12





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
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 V·LOV
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 March 31, 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.





Results
of Operations





Three Month Periods Ended March 31,2009
                
                
                2008(Amounts in thousands, in U.S. Dollars, except for
                  percentages)Sales
                
                $
                17,865
                
                
                
                100.00
                %
                
                $
                11,273
                
                
                
                100.00
                %Gross
      Profit
                
                $
                6,398
                
                
                
                35.81
                %
                
                $
                4,358
                
                
                
                38.66
                %Operating
      Expense
                
                $
                1,361
                
                
                
                7.62
                %
                
                $
                1,558
                
                
                
                13.82
                %Income
      From Operations
                
                $
                5,037
                
                
                
                28.19
                %
                
                $
                2,800
                
                
                
                24.84
                %Other
      Expenses / (Income)
                
                $
                7
                
                
                
                0.04
                %
                
                $
                12
                
                
                
                0.11
                %Income
      tax expenses
                
                $
                1,257
                
                
                
                7.04
                %
                
                $
                697
                
                
                
                6.18
                %Net
      Income
                
                $
                3,773
                
                
                
                21.11
                %
                
                $
                2,091
                
                
                
                18.55
                %





5





Sales for
the three months ended March 31, 2009 were $17,865,000, an increase of 58.48%
from $11,273,000 for the same period of 2008.  We generate revenue
primarily from the production and sale of garments in the domestic Chinese
markets through our 689 Point-of-Sales (“POS”) spread across 10
provinces.  The increase in our sales was primarily attributable to
our marketing efforts under the VLOV brand and the rapid expansion of our sales
network.





The
following table sets forth a breakdown of our total sales revenue, by
provinces, for the periods indicated:




Three Month Periods Ended March 31,2009
                                                  
                                                  
                                                  2008(Amounts in thousands, in U.S. Dollars, except for percentages)$
                                                  
                                                  
                                                  % of total
                                                    sales revenue
                                                  
                                                  
                                                  $
                                                  
                                                  
                                                  % of total
                                                    sales revenue
                                                  
                                                  
                                                  Growth in
                                                    2009
      compared
                                                    with 2008Beijing
                                                  
                                                  $
                                                  818
                                                  
                                                  
                                                  
                                                  4.58
                                                  %
                                                  
                                                  $
                                                  292
                                                  
                                                  
                                                  
                                                  2.59
                                                  %
                                                  
                                                  
                                                  180.14
                                                  %Zhejiang
                                                  
                                                  $
                                                  3,607
                                                  
                                                  
                                                  
                                                  20.19
                                                  %
                                                  
                                                  $
                                                  2,853
                                                  
                                                  
                                                  
                                                  25.31
                                                  %
                                                  
                                                  
                                                  26.43
                                                  %Shandong
                                                  
                                                  $
                                                  1,970
                                                  
                                                  
                                                  
                                                  11.03
                                                  %
                                                  
                                                  $
                                                  904
                                                  
                                                  
                                                  
                                                  8.02
                                                  %
                                                  
                                                  
                                                  117.92
                                                  %Jiangxi
                                                  
                                                  $
                                                  2,163
                                                  
                                                  
                                                  
                                                  12.11
                                                  %
                                                  
                                                  $
                                                  1,645
                                                  
                                                  
                                                  
                                                  14.59
                                                  %
                                                  
                                                  
                                                  31.49
                                                  %Yunnan
                                                  
                                                  $
                                                  1,797
                                                  
                                                  
                                                  
                                                  10.06
                                                  %
                                                  
                                                  $
                                                  1,908
                                                  
                                                  
                                                  
                                                  16.93
                                                  %
                                                  
                                                  
                                                  (5.82
                                                  )%Shanxi
                                                  
                                                  $
                                                  1,285
                                                  
                                                  
                                                  
                                                  7.19
                                                  %
                                                  
                                                  $
                                                  413
                                                  
                                                  
                                                  
                                                  3.66
                                                  %
                                                  
                                                  
                                                  211.14
                                                  %Liaoning
                                                  
                                                  $
                                                  1,185
                                                  
                                                  
                                                  
                                                  6.63
                                                  %
                                                  
                                                  $
                                                  701
                                                  
                                                  
                                                  
                                                  6.22
                                                  %
                                                  
                                                  
                                                  69.04
                                                  %Hubei
                                                  
                                                  $
                                                  2,405
                                                  
                                                  
                                                  
                                                  13.46
                                                  %
                                                  
                                                  $
                                                  862
                                                  
                                                  
                                                  
                                                  7.65
                                                  %
                                                  
                                                  
                                                  179.00
                                                  %Henan
                                                  
                                                  $
                                                  1,303
                                                  
                                                  
                                                  
                                                  7.29
                                                  %
                                                  
                                                  $
                                                  838
                                                  
                                                  
                                                  
                                                  7.43
                                                  %
                                                  
                                                  
                                                  55.49
                                                  %Guangxi
                                                  
                                                  $
                                                  1,200
                                                  
                                                  
                                                  
                                                  6.72
                                                  %
                                                  
                                                  $
                                                  799
                                                  
                                                  
                                                  
                                                  7.09
                                                  %
                                                  
                                                  
                                                  50.19
                                                  %Others
                                                  
                                                  $
                                                  132
                                                  
                                                  
                                                  
                                                  0.74
                                                  %
                                                  
                                                  $
                                                  58
                                                  
                                                  
                                                  
                                                  0.51
                                                  %
                                                  
                                                  
                                                  127.59
                                                  %Total
      Net Sales
                                                  
                                                  $
                                                  17,865
                                                  
                                                  
                                                  
                                                  100.00
                                                  %
                                                  
                                                  $
                                                  11,273
                                                  
                                                  
                                                  
                                                  100.00
                                                  %
                                                  
                                                  
                                                  58.48
                                                  %





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 March 31,2009
                    
                    
                    2008(Amounts in thousands, in U.S. Dollars, except for percentages)Total
      Net Sales
                    
                    $
                    17,865
                    
                    
                    
                    100.0
                    %
                    
                    $
                    11,273
                    
                    
                    
                    100.0
                    %O.E.M.
      Finished Goods
                    
                    $
                    10,685
                    
                    
                    
                    93.18
                    %
                    
                    $
                    3,369
                    
                    
                    
                    48.72
                    %Raw
      Materials
                    
                    $
                    465
                    
                    
                    
                    4.06
                    %
                    
                    $
                    2,560
                    
                    
                    
                    37.03
                    %Labor
                    
                    $
                    169
                    
                    
                    
                    1.47
                    %
                    
                    $
                    166
                    
                    
                    
                    2.4
                    %Outsource
      Production Costs
                    
                    $
                    -
                    
                    
                    
                    -
                    %
                    
                    $
                    680
                    
                    
                    
                    9.83
                    %Other
      and Overhead
                    
                    $
                    148
                    
                    
                    
                    1.29
                    %
                    
                    $
                    140
                    
                    
                    
                    2.02
                    %Total
      Cost of Sales
                    
                    $
                    11,467
                    
                    
                    
                    64.19
                    %
                    
                    $
                    6,915
                    
                    
                    
                    61.34
                    %Gross
      Profit
                    
                    $
                    6,398
                    
                    
                    
                    35.81
                    %
                    
                    $
                    4,358
                    
                    
                    
                    38.66
                    %





Raw
materials cost and outsource production cost accounted for 4.06% and 0%,
respectively, of our total net sales for the period ended March 31, 2009,
compared to 37.03% and 9.83%, respectively, in the three months ended March 31,
2008.





Labor
cost accounted for 1.47% of our total net sales for the first three months in
2009, decreased by 0.93% compared to the same period in 2008, because the
company has more reliance on O.E.M. goods.





6





Total
cost of sales for the three months ended March 31, 2009 was $11,467,000, an
increase of 65.83% from $6,915,000 for the same period in 2008. As a percentage
of total net sales, our cost of sales increased to approximately 64.19% of total
net sales for the three months ended March 31, 2009, up slightly from
approximately 61.34% of total net sales for the same period in 2008.
Consequently, gross margin as a percentage of total net sales decreased slightly
to 35.81% for the three months ended March 31, 2009 from 38.66% for the same
period in 2008. Our gross margin decreased mainly due to a downturn in the
economy and keen competition.





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 March 31,2009
                  
                  
                  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
                  
                  $
                  818
                  
                  
                  $
                  525
                  
                  
                  $
                  293
                  
                  
                  
                  35.82
                  %
                  
                  $
                  292
                  
                  
                  $
                  178
                  
                  
                  $
                  114
                  
                  
                  
                  39.04
                  %Zhejiang
                  
                  $
                  3,607
                  
                  
                  $
                  2,315
                  
                  
                  $
                  1,292
                  
                  
                  
                  35.82
                  %
                  
                  
                  2,853
                  
                  
                  $
                  1,746
                  
                  
                  $
                  1,107
                  
                  
                  
                  38.80
                  %Shandong
                  
                  $
                  1,970
                  
                  
                  $
                  1,265
                  
                  
                  $
                  705
                  
                  
                  
                  35.79
                  %
                  
                  
                  904
                  
                  
                  $
                  553
                  
                  
                  $
                  351
                  
                  
                  
                  38.83
                  %Jiangxi
                  
                  $
                  2,163
                  
                  
                  $
                  1,389
                  
                  
                  $
                  774
                  
                  
                  
                  35.78
                  %
                  
                  
                  1,645
                  
                  
                  $
                  1,014
                  
                  
                  $
                  631
                  
                  
                  
                  38.36
                  %Yunnan
                  
                  $
                  1,797
                  
                  
                  $
                  1,153
                  
                  
                  $
                  644
                  
                  
                  
                  35.84
                  %
                  
                  
                  1,908
                  
                  
                  $
                  1,168
                  
                  
                  $
                  740
                  
                  
                  
                  38.78
                  %Shanxi
                  
                  $
                  1,285
                  
                  
                  $
                  825
                  
                  
                  $
                  460
                  
                  
                  
                  35.80
                  %
                  
                  
                  413
                  
                  
                  $
                  253
                  
                  
                  $
                  160
                  
                  
                  
                  38.74
                  %Liaoning
                  
                  $
                  1,185
                  
                  
                  $
                  760
                  
                  
                  $
                  425
                  
                  
                  
                  35.86
                  %
                  
                  $
                  701
                  
                  
                  $
                  440
                  
                  
                  $
                  261
                  
                  
                  
                  37.23
                  %Hubei
                  
                  $
                  2,405
                  
                  
                  $
                  1,544
                  
                  
                  $
                  861
                  
                  
                  
                  35.80
                  %
                  
                  
                  862
                  
                  
                  $
                  526
                  
                  
                  $
                  336
                  
                  
                  
                  38.98
                  %Henan
                  
                  $
                  1,303
                  
                  
                  $
                  836
                  
                  
                  $
                  467
                  
                  
                  
                  35.84
                  %
                  
                  
                  838
                  
                  
                  $
                  511
                  
                  
                  $
                  327
                  
                  
                  
                  39.02
                  %Guangxi
                  
                  $
                  1,200
                  
                  
                  $
                  770
                  
                  
                  $
                  430
                  
                  
                  
                  35.83
                  %
                  
                  
                  799
                  
                  
                  $
                  489
                  
                  
                  $
                  310
                  
                  
                  
                  38.80
                  %Others
                  
                  $
                  132
                  
                  
                  $
                  85
                  
                  
                  $
                  47
                  
                  
                  
                  35.61
                  %
                  
                  
                  58
                  
                  
                  $
                  37
                  
                  
                  $
                  21
                  
                  
                  
                  36.21
                  %Total
                  
                  $
                  17,865
                  
                  
                  $
                  11,467
                  
                  
                  $
                  6,398
                  
                  
                  
                  35.81
                  %
                  
                  
                  11,273
                  
                  
                  $
                  6,915
                  
                  
                  $
                  4,358
                  
                  
                  
                  38.66
                  %





Overall
gross margin for the three months ended March 31, 2009 was 35.81%, which
decreased slightly from 38.66% for the same three month period in 2008 due to
the economic downturn and fierce competition.





Selling,
General and Administrative Expenses




Three Months Ended March 31,2009
                      
                      
                      2008$
                      
                      
                      % of Total
                        Net Sales
                      
                      
                      $
                      
                      
                      % of Total
                        Net Sales(Amounts in thousands, in U.S. Dollars, except for percentages)Gross
      Profit
                      
                      $
                      6,398
                      
                      
                      
                      35.81
                      %
                      
                      $
                      4,358
                      
                      
                      
                      38.66
                      %Operating
      Expenses:Selling
      Expenses
                      
                      
                      745
                      
                      
                      
                      4.17
                      %
                      
                      
                      794
                      
                      
                      
                      7.04
                      %General
      and Administrative Expenses
                      
                      
                      616
                      
                      
                      
                      3.45
                      %
                      
                      
                      764
                      
                      
                      
                      6.78
                      %1,361
                      
                      
                      
                      7.62
                      %
                      
                      
                      1,558
                      
                      
                      
                      13.82
                      %Income
      from Operations
                      
                      $
                      5,037
                      
                      
                      
                      28.19
                      %
                      
                      $
                      2,800
                      
                      
                      
                      24.84
                      %





Selling
expenses for the three months ended March 31, 2009 decreased by 6.17% from
$794,000 for the same period in 2008 to $745,000 in 2009.  The
decrease was mainly due to a decrease in advertising expenses.





General
and administrative expenses decreased by 19.37% from $764,000 for the three
month period in 2008 to $616,000 for the same period in 2009.  The
decrease was mainly due to a decrease in expenses on research &
development.





7




Interest
Expenses





Interest
expenses were $14,000 for the three months ended March 31, 2009 compared to
$15,000 for the same period in 2008. There were no significant changes in
outstanding amount of bank loan and interest rate, thus, the interest expenses
remain fairly constant. This decrease was mainly due to the change in exchange
rates between US dollars and RMB during the two years.





Income
Tax Expenses




Income
tax expenses for March 31, 2009 and 2008 amounted to $1,257,000 and $697,000,
respectively, and our income tax rates were 25% during 2008 and 2009. The
increase in income tax expenses was attributable to an increase in pre-tax
income.





Net
Income





Net
income for the three months ended March 31, 2009 was $3,773,000, an increase of
80.44% from $2,091,000 for the same period in 2008. This increase was
mainly attributable to an increase in sales volume and a decrease in research
& development and advertising expenses.





Liquidity
and Capital Resources





As of
March 31, 2009, we had cash and cash equivalents of $1,204,000, other current
assets of $10,068,000 and current liabilities of $6,381,000. 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 three months ended March 31, 2009 was
$4,206,000 compared with net cash provided by operating activities of $2,340,000
for the same period in 2008. This increase was mainly attributable to increase
in sales income.





There was
no cash used in investing activities for the three months ended March 31, 2009,
compared with $43,000 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 first three months ended March 31,
2009.





Net cash
used in financing activities was $5,860,000 for the three months ended March 31,
2009, compared with $2,516,000 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.




As of
March 31, 2009, the inventories had decreased to $489,000 compared with
$3,665,000 as of March 31, 2008 as finished goods decreased to $120,000 as of
March 31, 2009 from $3,273,000 as of March 31, 2008 resulting from more reliance
on O.E.M products.





As of
March 31, 2009, we had accounts receivable of $9,460,000, compared with
$5,484,000 as of March 31, 2008. The accounts receivable turnover ratio
increased to 43.58 days as of March 31, 2009 from 39.91 days as of March 31,
2008. The increase in accounts receivables was mainly due to a large increase in
sales volume.





As of
March 31, 2009, we had accounts payables of $3,522,000, compared with $3,286,000
as of March 31, 2008. The increase was mainly due to an increase in purchase to
meet the increased sales order.





As of
March 31, 2009, we had accrued expenses and other payables of $551,000, compared
with $714,000 as of March 31, 2008. The decrease was mainly due to a decrease in
subsidiaries and 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 March 31, 2009, and
the effect that these obligations are expected to have on our liquidity and cash
flows in future periods.





8




Payments Due by PeriodTotal
                                
                                Less than 1
                                  year
                                
                                1 Year +(in thousands of dollars)Contractual
      Obligations:Total
      Indebtedness
                                
                                
                                
                                $
                                733
                                
                                
                                $
                                733
                                
                                
                                $Operating
      Leases
                                
                                
                                
                                
                                33
                                
                                
                                
                                33Total
      Contractual Obligations:
                                $
                                
                                
                                $
                                766
                                
                                
                                $
                                766
                                
                                
                                $




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.





Item
      3.
            Quantitative
      and Qualitative Disclosures About Market
Risk





Currency
Risk





As 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 Renminbi
exchange rate relative to other currencies is considered minimal to our business
operations.  .  However, we use the United States dollar for
financial reporting purposes and therefore, fluctuations in the exchange rate
between the Renminbi and the U.S dollar will result in increases or decreases in
other comprehensive income or loss.  Conversion of Renminbi 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 Renminbi, there can be no assurance that such
exchange rate will not again become volatile or that Renminbi will not
strengthen or devalue significantly against the US dollar.  Exchange
rate fluctuations may adversely affect the value, in US 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 counterparties
failure to perform their obligations as at March 31, 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 the customer and other relevant
current economic factors. As of March 31, 2009, all of the trade receivable
balances were aged less than 90 days and management has determined 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 it exposure spread over a number of counterparties and
customers.





Item
4T.                 Controls
and Procedures





Evaluation
of Disclosure Controls and Procedures





9





As of
March 31, 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 Controls over Financial Reporting





Changes
in Internal Control Over Financial Reporting





There was
no change in our internal control over financial reporting during the quarter
ended March 31, 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





PART
II - OTHER INFORMATION





Item
      1.
            Legal
      Proceedings.





None





Item
1A.                 Risk
Factors.





You
should carefully consider the risks described below together with all of the
other information included in this prospectus before making an investment
decision with regard to our securities. The statements contained in or
incorporated into this prospectus that are not historic facts are
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth in or
implied by forward-looking statements. If any of the following events
described in these risk factors actually occurs, our business,
financial condition or results of operations could be harmed. In that case, the
trading price of our common stock could decline, and you may lose all or part of
your investment.





Risks
Relating to Our Industry





Negative
changes in the economy, such as the recent deterioration in the global economic
environment, and resulting declines in consumer confidence and spending, have
had and could continue to have an adverse effect on the apparel industry and on
our operating results.





The
apparel industry is cyclical in nature and is particularly affected by adverse
trends in the general economy. Purchases of apparel and related merchandise are
generally discretionary and therefore tend to decline during recessionary
periods and also may decline at other times. During 2008 and continuing into
2009, the global economic environment has deteriorated significantly. The
declining values in real estate, reduced credit lending by banks, solvency
concerns of major financial institutions, increases in unemployment levels and
recent significant declines and volatility in the global financial markets have
negatively impacted the level of consumer spending for discretionary items. This
has affected our business as it is dependent on consumer demand for our
products. In China, we have experienced a slowdown in customer traffic and a
highly promotional environment where retailers compete fiercely for dwindling
business.  For the quarter ended March 31, 2009, our overall gross margin
decreased as a result of the downturn in the economy and fierce
competition.  During periods of economic uncertainty, we may not be able to
maintain or increase our sales to existing customers, make sales to new
customers, maintain sales levels at our existing POS, or maintain or improve our
margins from operations as a percentage of net sales.  Our customers
anticipate and respond to adverse changes in economic conditions and uncertainty
by reducing inventories and canceling orders.  If the economic environment
continues to be weak or deteriorates further, there will likely be a negative
effect on our revenues, operating margins and earnings across all of our
segments.





Intense
competition in the worldwide apparel industry could reduce our sales and
prices.





We face a
variety of competitive challenges from other apparel producers both in China and
other countries.  Some of these competitors have greater financial and
marketing resources than we do and may be able to adapt to changes in consumer
preferences or retail requirements more quickly, devote greater resources to the
marketing and sale of their products or adopt more aggressive pricing policies
than we can.  As a result, we may not be able to compete successfully
with them if we cannot continue enhancing our marketing and management
strategies, quality and value or responding appropriately to consumers
needs.





10





Competition
from companies with significantly greater resources than ours, and if we are
unable to compete effectively with these companies, our market share may decline
and our business could be harmed.





We face
intense competition in the apparel industry from other established
companies.  A number of our competitors may have significantly greater
financial, technological, manufacturing, sales, marketing and distribution
resources than we do.  Their greater capabilities in these areas may
enable them to better withstand periodic downturns in the apparel industry,
compete more effectively on the basis of price and production and more quickly
develop new products.  In addition, new companies may enter the
markets in which we compete, further increasing competition in the
industry.  We believe that our ability to compete successfully depends
on a number of factors, including the style and quality of our products and the
strength of our brand name, as well as many factors beyond our
control.  We may not be able to compete successfully in the future,
and increased competition may result in price reductions, reduced profit
margins, loss of market share and an inability to generate cash flows that are
sufficient to maintain or expand our development and marketing of new products,
which would adversely impact the trading price of our common stock.




The
worldwide apparel industry is subject to ongoing pricing pressure.





The
apparel market is characterized by low barriers to entry for both suppliers and
marketers, global sourcing through suppliers located throughout the world, trade
liberalization, continuing movement of product sourcing to lower cost countries,
ongoing emergence of new competitors with widely varying strategies and
resources, and an increasing focus on apparel in the mass merchant channel of
distribution.  These factors contribute to ongoing pricing pressure
throughout the supply chain.  This pressure has and may continue
to:





·
            require
      us to reduce wholesale prices on existing
  products;





·
            result
      in reduced gross margins across our product lines;
  and





·
            increase
      pressure on us to further reduce our production costs and our operating
      expenses.





Any of
these factors could adversely affect our business and financial
condition.





Fluctuation
in the price, availability and quality of raw materials could increase our cost
of goods and decrease our profitability.





We
purchase raw materials directly from local fabric and accessory
suppliers.  We may also import specialty fabrics to meet specific
customer requirements.  We also purchase finished goods from other
contract manufacturers.  The prices we charge for our products are
dependent in part on the market price for raw materials used to produce
them.  The price, availability and quality of our raw materials may
fluctuate substantially, depending on a variety of factors, including
demand, supply conditions, transportation costs, government regulation,
economic climates and other unpredictable factors.  Any raw material
price increases could increase our cost of goods and decrease our profitability
unless we are able to pass higher prices on to our customers.





For the
three months ended March 31, 2009, we relied on three suppliers for 17.00%,
11.15% and 10.74%, respectively, of our total supply purchases. For the
three months ended March 31, 2008, we relied on three suppliers for 34.74%,
33.49% and 11.16%, respectively, of our total supply purchases. We do not
have any long-term written agreements with any of our suppliers and do not
anticipate entering into any such agreements in the near future.  We
do not believe that loss on any of these suppliers would have a material adverse
effect on our ability to obtain finished goods or raw materials essential to our
business because we believe we can locate other suppliers in a timely
manner.




Our
continued operations depend on current fashion trends.  If our designs
and products do not continue to be fashionable, our business could be adversely
affected.





Our
success depends in large part on our ability to develop, market and deliver
innovative and stylish products that are consistent and build on our brand and
image at a pace and intensity competitive with our competition.  The
novelty and the design of our VLOV apparel are critical to our success and
competitive position, and the inability to continue to develop and offer unique
products to our customers could harm our business.  We cannot be
certain that trendy apparel and related accessories will continue to be
fashionable.  Should the trend steer away from apparel and
related accessories such as ours, our sales could decrease and our business
could be adversely affected.  In addition, our future designs and
plans to expand our product offerings may not be successful, and any
unsuccessful designs or product offerings could adversely affect our
business.




11




Our
business and the success of our products could be harmed if we are unable to
maintain our brand image.




Our
success to date has been due in large part to the growth of our brand
image.  If we are unable to timely and appropriately respond to
changing consumer demand, our brand name and brand image may be
impaired.  Even if we react appropriately to changes in consumer
preferences, consumers may consider our brand image to be outdated or associate
our brand with styles that are no longer popular.  In the past, many
apparel companies have experienced periods of rapid growth in revenues and
earnings followed by periods of declining sales and losses.  Our
business may be similarly affected in the future.




Risks
Relating to Our Business





Our
limited operating history makes it difficult to evaluate our future prospects
and results of operations.





We have a
limited operating history. Yinglin Jinduren commenced business in 2004.
Accordingly, you should consider our future prospects in light of the risks and
uncertainties experienced by early stage companies in evolving industries such
as the apparel industry in China. Some of these risks and uncertainties relate
to our ability to:





·
            maintain
      our market position;





·
            attract
      additional customers and increase spending per
  customer;





·
            respond
      to competitive market conditions;





·
            increase
      awareness of our brand and continue to develop customer
      loyalty;





·
            respond
      to changes in our regulatory
environment;





·
            maintain
      effective control of our costs and
expenses;





·
            raise
      sufficient capital to sustain and expand our business; and attract, retain
      and motivate qualified personnel.





If we are
unsuccessful in addressing any of these risks and uncertainties, our business
may be materially and adversely affected.




We
may be unable to sustain our past growth or manage our future growth, which may
have a material adverse effect on our future operating results.





We have
experienced rapid growth since our inception, and have increased our net sales
from $4.74 million in 2004 to $51.86 million in 2008. In the first
three months in 2009, we have sales of $17.87 million, compared to $11.27
million in the same period in 2008, we anticipate that our future growth rate
will depend upon various factors, including the strength of our brand image, the
market success of our current and future products, the success or our growth
strategies, competitive conditions and our ability to manage our future
growth.  Future growth may place a significant strain on our
management and operations. As we continue to grow in our operations, our
operational, administrative, financial and legal procedures and controls will
need to be expanded. As a result, we may need to train and manage an increasing
number of employees, which could distract our management team from our business.
Our future success will depend substantially on the ability of our management
team to manage our anticipated growth. If we are unable to anticipate or manage
our growth effectively, our future operating results could be adversely
affected.




Our
business could be harmed if we fail to maintain proper inventory
levels.





We place
orders with our contract manufacturers for most of our products when we receive
all of our customers’ orders.  We do this to minimize purchasing
costs, the time necessary to fill customer orders and the risk of non-delivery.
We also maintain an inventory of certain products that we anticipate will be in
greater demand. However, we may be unable to sell the products we have ordered
in advance from manufacturers or that we have in our inventory. Inventory levels
in excess of customer demand may result in inventory write-downs, and the sale
of excess inventory at discounted prices could significantly impair our brand
image and have a material adverse effect on our operating results and financial
condition. Conversely, if we underestimate consumer demand for our products or
if our manufacturers fail to supply the quality products that we require at the
time we need them, we may experience inventory shortages. Inventory shortages
might delay shipments to customers, negatively impact retailer and distributor
relationships, and diminish brand loyalty.




We
rely on our distributors to operate our retail network.





Our
distributors operate, directly or indirectly via third parties, our V·LOV POS.
We do not own or operate any V·LOV retail stores ourselves. We depend on our
distributors’ regional retail experience and economies of scale. We may not be
able to expand the geographical coverage of our existing distributors, or be
able to engage new distributors who have strong network and retail experience,
which may substantially impair our sales targets. We rely on our distributors in
the management and expansion of the V·LOV retail sales network. Even though we
provide retail policies and guidelines, training, advertising and marketing
support, our distributors might not carry out our visions and satisfy the needs
of our business. Our sales to distributors also may not correlate directly to
the demand for our products by end customers. If our distributors mismanage and
do not effectively expand our retail network, our business and our reputation
can be adversely affected.





12





We
rely on contract manufacturing of our products.  Our inability to
secure production sources meeting our quality, cost, working conditions and
other requirements, or failures by our contractors to perform, could harm our
sales, service levels and reputation.





We source
our products from independent manufacturers who purchase fabric and other raw
materials. As a result, we must locate and secure production capacity. We depend
on independent manufacturers to maintain adequate financial resources, secure a
sufficient supply of raw materials, and maintain sufficient development and
manufacturing capacity in an environment characterized by continuing cost
pressure and demands for product innovation and speed-to-market. In addition, we
do not have material long-term contracts with any of our independent
manufacturers, and these manufacturers generally may unilaterally terminate
their relationship with us at any time.





Our
dependence on contract manufacturing could subject us to difficulty in obtaining
timely delivery of products of acceptable quality. A manufacturer's failure to
deliver products to us in a timely manner or to meet our quality standards could
cause us to miss the delivery date requirements of our wholesale customers. In
addition, any interference with our ability to receive delivery from those
manufacturers, such as conditions at ports or issues that otherwise affect
transportation and warehousing providers, could cause delayed delivery of
product. Additionally, if we experience a significant increase in demand, or if
we need to replace any of the manufacturers that we currently use, we may have
to expand our third party manufacturing capacity. We cannot be assured that this
capacity will be available to us, or that if available it will be available on
terms that are acceptable to us. Failing to make timely deliveries may cause our
customers to cancel orders, refuse to accept deliveries, impose non-compliance
charges through invoice deductions or other charge-backs, demand reduced prices
or reduce future orders, any of which could harm our sales and
margins.




Our
success depends on the continued protection of our trademark and other
proprietary intellectual property rights.





Our
trademark and other intellectual property rights are important to our success
and competitive position, and the loss of or inability to enforce trademark and
other proprietary intellectual property rights could harm our business. We
devote substantial resources to the establishment and protection of our
trademark and other proprietary intellectual property rights in China. Our
efforts to establish and protect our trademark and other proprietary
intellectual property rights may not be adequate to prevent imitation or
counterfeiting of our products by others or to prevent others from seeking to
block sales of our products. Unauthorized copying of our products or
unauthorized use of our trademarks or other proprietary rights may not only
erode sales of our products but may also cause significant damage to our brand
names and our ability to effectively represent ourselves to our
customers.




Our
business could suffer from the financial instability of our
distributors.





We sell
our product to certain distributors on open accounts with 30 to 60 day
payment terms, but these arrangements are not always
possible.  Financial difficulties of our distributors could result in
losses for our company.




The
loss of our incoming Chief Executive Officer, Chief Designer or other key
management personnel would have an adverse impact on our future development and
could impair our ability to succeed.





Our
performance is substantially dependent upon the expertise of our incoming Chief
Executive Officer, Mr. Qingqing Wu, our Chief Designer, Mr. Fengfei Zeng, and
other key management personnel.  Mr. Wu and Mr. Zeng spend all of
their working time on our company's business. It may be difficult to find
qualified individuals to replace Mr. Wu and Mr. Zeng or other key management
personnel if we were to lose any one or more of them. The loss of Mr. Wu, Mr.
Zeng or any of our key management personnel could have a material adverse effect
on our business, development, financial condition, and operating
results.  Furthermore, most members of our design team, with the
exception of Mr. Zeng, are not currently under contract. Mr. Zeng does not have
a non-competition clause in his contract, however, so there is nothing to
restrict him from leaving V·LOV and going to work for a competitor.




Our
quarterly revenues and operating results fluctuate as a result of a variety of
factors, including seasonal fluctuations in demand for denim and related
apparel, and accessories delivery date delays, timing of new POS
openings.





Our
quarterly revenues and operating results have varied significantly in the past
and can be expected to fluctuate in the future due to a number of factors, many
of which are beyond our control.  For example, sales of our products
have historically been somewhat seasonal in nature with the strongest sales
generally occurring during the Chinese New Year holiday in early spring, Labor
Day holiday in early May, summer months, and National Day holiday in early
October.  Delays in scheduling or pickup of products by our wholesale
customers could negatively impact our net sales and results of operations for
any given quarter.  The timing of new POS openings and the amount of
revenue contributed by new POS could also impact our net sales and results of
operations for any given quarter.  As a result of these specific and
other general factors, our operating results will likely vary from quarter to
quarter and the results for any particular quarter may not be necessarily
indicative of results for the full year.  Any shortfall in revenues or
net income from levels expected by securities analysts and investors could cause
a decrease in the trading price of our common stock.





13




We
depend on our distributors for our sales. A significant adverse change in our
relationship with a distributor or in a distributor’s performance or financial
position could harm our business and financial condition.





For the
three months ended March 31, 2009, our five largest distributors represented
approximately 66.85% of our total net sales. A decision by a major distributor,
whether motivated by competitive considerations, strategic shifts, financial
requirements or difficulties, economic conditions or otherwise, to decrease its
purchases from us or to change its manner of doing business with us, could
adversely affect our business and financial condition. In addition, while we
have long-standing relationships, we do not have long term contracts with any of
our distributors. We identify suitable distributors and enter into
distributorship agreements, generally for a term of up to 12 months, renewable
on a year to year basis upon satisfying certain criteria.





We do not
believe that there is any material risk of loss of any of these distributors
during the next 12 months. We also believe that the unexpected loss of these
distributors could have material adverse effect on our earnings or financial
condition.  While we believe that we could replace these distributors
within 12 months, the loss of which will not have material adverse effect on our
financial condition in the long term.  None of our affiliates are
officers, directors, or material shareholders of any of these
distributors.





We
will be required to evaluate our internal control over financial reporting under
Section 404 of the Sarbanes-Oxley Act.





Failure
to timely comply with the requirements of Section 404 or any adverse results
from such evaluation could result in a loss of investor confidence in our
financial reports and have an adverse effect on the trading price of our debt
and equity securities.





We
currently are not an “accelerated filer” as defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended. Beginning with our Annual Report
for the year ended December 31, 2008, Section 404 of the Sarbanes-Oxley Act of
2002 requires us to include an internal control report with our Annual Report on
Form 10-K. That report must include management’s assessment of the effectiveness
of our internal control over financial reporting as of the end of the fiscal
year.  This report must also include disclosure of any material
weaknesses in internal control over financial reporting that we have
identified.  Additionally, for the fiscal year ended December 31, 2009
our independent registered public accounting firm will be required to issue a
report and their evaluation of the operating effectiveness of our internal
control over financial reporting.  Our assessment requires us to make
subjective judgments and our independent registered public accounting firm may
not agree with our assessment.





Achieving
compliance with Section 404 within the prescribed period may require us to incur
significant costs and expend significant time and management
resources.  If we are not able to complete our assessments as required
under Section 404 in a timely manner, we and our independent registered public
accounting firm would be unable to conclude that our internal control over
financial reporting is effective. As a result, investors could lose confidence
in our reported financial information, which could have an adverse effect on the
trading price of our securities. In addition, our independent registered public
accounting firm may not conclude that our internal control over financial
reporting is operating effectively.  We will continue to consistently
improve our internal control over the financial reporting with our best efforts
and we plan to engage assistance from outside experts in doing so.





We
must successfully maintain and/or upgrade our information technology
systems.





We rely
on various information technology systems to manage our operations, and we
regularly evaluate these systems against our current and expected
requirements.  Although we have no current plans to implement
modifications or upgrades to our systems, we will eventually be required to make
changes to legacy systems and acquiring new systems with new
functionality.  We are considering additional investments in updating
our current system to help us improve our internal control system and to meet
compliance requirements under Section 404.  We are also continuing to
develop and update our internal information systems on a timely basis to meet
our business expansion needs.  Any information technology system
disruptions, if not anticipated and appropriately mitigated, could have an
adverse effect on our business and operations.





Business
interruptions could adversely affect our business.





Our
operations and the operations of our suppliers and distributors are vulnerable
to interruption by fire, earthquake, hurricanes, power loss, telecommunications
failure and other events beyond our control. In the event of a major natural
disaster, we could experience business interruptions, destruction of facilities
and loss of life. In the event that a material business interruption occurs that
affects us or our suppliers or distributors, deliveries could be delayed and our
business and financial results could be harmed.




14




We
must attract more consumers within our targeted profile and female consumers to
our brand.





Our V·LOV
brand sales are weighted towards male consumers 15 to 34 years of age. If we are
not successful in attracting consumers within our demographic profile and more
female consumers to our brands, our results of operation and our ability to grow
will be adversely affected.





Risks
Related to Our Corporate Structure




We
conduct our business through Yinglin Jinduren by means of contractual
arrangements. If the Chinese government determines that these contractual
arrangements do not comply with applicable regulations, our business could be
adversely affected. If the PRC regulatory bodies determine that the
agreements that establish the structure for operating our business in China do
not comply with PRC regulatory restrictions on foreign investment, we could be
subject to severe penalties. In addition, changes in such Chinese laws and
regulations may materially and adversely affect our business.





There are
uncertainties regarding the interpretation and application of PRC laws, rules
and regulations, including but not limited to the laws, rules and regulations
governing the validity and enforcement of the contractual arrangements between
Korea Jinduren and Yinglin Jinduren. Although we have been advised by our PRC
counsel, that based on their understanding of the current PRC laws, rules and
regulations, the structure for operating our business in China (including our
corporate structure and contractual arrangements with Yinglin Jinduren and its
owners) comply with all applicable PRC laws, rules and regulations, and do not
violate, breach, contravene or otherwise conflict with any applicable PRC laws,
rules or regulations, we cannot assure you that the PRC regulatory authorities
will not determine that our corporate structure and contractual arrangements
violate PRC laws, rules or regulations. If the PRC regulatory authorities
determine that our contractual arrangements are in violation of applicable PRC
laws, rules or regulations, our contractual arrangements will become invalid or
unenforceable. In addition, new PRC laws, rules and regulations may be
introduced from time to time to impose additional requirements that may be
applicable to our contractual arrangements. For example, the PRC Property Rights
Law that became effective on October 1, 2007 may require us to register
with the relevant government authority the security interests on the equity
interests in Yinglin Jinduren granted to us under the equity pledge agreements
that are part of the contractual arrangements. If we are required to register
such security interests, failure to complete such registration in a timely
manner may result in such equity pledge agreements to be unenforceable against
third party claims.





The
Chinese government has broad discretion in dealing with violations of laws and
regulations, including levying fines, revoking business and other licenses and
requiring actions necessary for compliance. In particular, licenses and permits
issued or granted to us by relevant governmental bodies may be revoked at a
later time by higher regulatory bodies. We cannot predict the effect of the
interpretation of existing or new Chinese laws or regulations on our businesses.
We cannot assure you that our current ownership and operating structure would
not be found in violation of any current or future Chinese laws or regulations.
As a result, we may be subject to sanctions, including fines, and could be
required to restructure our operations or cease to provide certain services. Any
of these or similar actions could significantly disrupt our business operations
or restrict us from conducting a substantial portion of our business operations,
which could materially and adversely affect our business, financial condition
and results of operations.





If we,
Korea Jinduren or Yinglin Jinduren are determined to be in violation of any
existing or future PRC laws, rules or regulations or fail to obtain or maintain
any of the required governmental permits or approvals, the relevant PRC
regulatory authorities would have broad discretion in dealing with such
violations, including:





·
            revoking
      the business and operating licenses of our PRC consolidated
      entities;





·
            discontinuing
      or restricting the operations of our PRC consolidated
      entities;





·
            imposing
      conditions or requirements with which we or our PRC consolidated entities
      may not be able to comply;





·
            requiring
      us or our PRC consolidated entities to restructure the relevant ownership
      structure or operations;





·
            restricting
      or prohibiting our use of the proceeds from our initial public offering to
      finance our business and operations in China;
or





·
            imposing
      fines.





The
imposition of any of these penalties would severely disrupt our ability to
conduct business and have a material adverse effect on our financial condition,
results of operations and prospects.





15




Our
contractual arrangements with Yinglin Jinduren and its owners may not be as
effective in providing control over these entities as direct
ownership.





We have
no equity ownership interest in Yinglin Jinduren, and rely on contractual
arrangements to control and operate the company and its businesses. These
contractual arrangements may not be as effective in providing control over the
company as direct ownership. For example, Yinglin Jinduren could fail to take
actions required for our business despite its contractual obligation to do so.
If Yinglin Jinduren fails to perform under its agreements with us, we may have
to rely on legal remedies under Chinese law, which may not be effective. In
addition, we cannot assure you that the owners of Yinglin Jinduren will act in
our best interests.




Because we rely on the consulting
services agreement with Yinglin Jinduren for our revenue, the termination of
this agreement will severely and detrimentally affect our continuing business
viability under our current corporate structure.





We are a
holding company and do not have any assets or conduct any business operations
other than the contractual arrangements between Korea Jinduren, our indirect
wholly owned subsidiary, and Yinglin Jinduren. As a result, we currently rely
entirely for our revenues on dividends payments from Korea Jinduren after it
receives payments from Yinglin Jinduren pursuant to the consulting services
agreement which forms a part of the contractual arrangements. The consulting
services agreement may be terminated by written notice of Korea Jinduren or
Yinglin Jinduren in the event that: (a) Yinglin Jinduren causes a material
breach of the agreement, provided that if the breach does not relate to a
financial obligation of the breaching party, that party may attempt to remedy
the breach within 14 days following the receipt of the written notice; (b) one
party becomes bankrupt, insolvent, is the subject of proceedings or arrangements
for liquidation or dissolution, ceases to carry on business, or becomes unable
to pay its debts as they become due; (c) Korea Jinduren terminates its
operations; or (d) circumstances arise which would materially and adversely
affect the performance or the objectives of the agreement. Additionally, Korea
Jinduren may terminate the consulting services agreement without cause. Because
neither we nor our direct and indirect subsidiaries own equity interests of
Yinglin Jinduren, the termination of the consulting services agreement would
sever our ability to continue receiving payments from Yinglin Jinduren under our
current holding company structure. While we are currently not aware of any event
or reason that may cause the consulting services agreement to terminate, we
cannot assure you that such an event or reason will not occur in the future. In
the event that the consulting services agreement is terminated, this may have a
severe and detrimental effect on our continuing business viability under our
current corporate structure, which in turn may affect the value of your
investment.




We
rely principally on dividends paid by our consolidated operating entity to fund
any cash and financing requirements we may have, and any limitation on the
ability of our consolidated PRC entities to pay dividends to us could have a
material adverse effect on our ability to conduct our business.





We are a
holding company, and rely principally on dividends paid by our consolidated PRC
operating entity for cash requirements, including the funds necessary to service
any debt we may incur. In particular, we rely on earnings generated by Yinglin
Jinduren, which are passed on to us through Korea Jinduren. If any of our
consolidated operating subsidiaries incurs debt in its own name in the future,
the instruments governing the debt may restrict dividends or other distributions
on its equity interest to us. In addition, the PRC tax authorities may require
us to adjust our taxable income under the contractual arrangements Korea
Jinduren currently have in place with Yinglin Jinduren, in a manner that would
materially and adversely affect our ability to pay dividends and other
distributions on our equity interest.





Furthermore,
applicable PRC laws, rules and regulations permit payment of dividends by our
consolidated PRC entity only out of its retained earnings, if any, determined in
accordance with PRC accounting standards. Under PRC laws, rules and regulations,
our consolidated PRC entities are required to set aside at least 10.0% of their
after-tax profit based on PRC accounting standards each year to their statutory
surplus reserve fund until the accumulative amount of such reserves reach 50.0%
of their respective registered capital. As a result, our consolidated PRC entity
is restricted in its ability to transfer a portion of its net income to us
whether in the form of dividends, loans or advances. As of March 31, 2009, our
restricted reserves totaled $913,000 and we had retained earnings of
$3.50 million. Our restricted reserves are not distributable as cash
dividends. Any limitation on the ability of our consolidated operating
subsidiaries to pay dividends to us could materially and adversely limit our
ability to grow, make investments or acquisitions that could be beneficial to
our businesses, pay dividends or otherwise fund and conduct our
business.





Management
members of Yinglin Jinduren have potential conflicts of interest with us, which
may adversely affect our business and your ability for recourse.




Mr.
Qingqing Wu, our incoming Chief Executive Officer, is also the Chairman Yinglin
Jinduren. Mr. Yushan Zheng, who is our Chief Financial Officer, is the Chief
Financial Officer of Yinglin Jinduren. Mr. Zhifan Wu, who is one of our
directors, is the Executive Director of Yinglin Jinduren. Conflicts of interests
between their respective duties to our company and Yinglin Jinduren may arise.
As our directors and executive officers, they have a duty of loyalty and care to
us under U.S. and Hong Kong law when there are any potential conflicts of
interests between our company and Yinglin Jinduren. We cannot assure you,
however, that when conflicts of interest arise, every one of them will act
completely in our interests or that conflicts of interests will be resolved in
our favor. For example, they may determine that it is in Yinglin Jinduren’s
interests to sever the contractual arrangements with Korea Jinduren,
irrespective of the effect such action may have on us. In addition, any one of
them could violate his or her legal duties by diverting business opportunities
from us to others, thereby affecting the amount of payment that Yinglin Jinduren
is obligated to remit to us under the consulting services
agreement.


16


In the
event that you believe that your rights have been infringed under the securities
laws or otherwise as a result of any one of the circumstances described above,
it may be difficult or impossible for you to bring an action against Yinglin
Jinduren or our officers or directors who are members of Yinglin Jinduren’s
management, all of whom reside within China. Even if you are successful in
bringing an action, the laws of China may render you unable to enforce a
judgment against the assets of Yinglin Jinduren and its management, all of which
are located in China.





Risks
Related to Doing Business in China





Yinglin
Jinduren is subject to restrictions on making payments to us.




We are a
holding company incorporated in Nevada and do not have any assets or conduct any
business operations other than our indirect investments in Yinglin Jinduren. As
a result of our holding company structure, we rely entirely on payments from
that company under the contractual arrangements with our indirect wholly owned
subsidiary, Korea Jinduren. The Chinese government also imposes controls on the
conversion of RMB into foreign currencies and the remittance of currencies out
of China. We may experience difficulties in completing the administrative
procedures necessary to obtain and remit foreign currency. See “Government
control of currency conversion may affect the value of your investment.”
Furthermore, if our affiliated entity in China incurs debt on their own in the
future, the instruments governing the debt may restrict their ability to make
payments. If we are unable to receive all of the revenues from our operations
through these contractual arrangements, we may be unable to pay dividends on our
ordinary shares.





Because
our assets are located overseas, shareholders may not receive distributions that
they would otherwise be entitled to if we were declared bankrupt or
insolvent.





All of
our assets are located in the PRC. Because our assets are located overseas, our
assets may be outside of the jurisdiction of U.S. courts to administer if we are
the subject of an insolvency or bankruptcy proceeding. As a result, if we
declared bankruptcy or insolvency, our shareholders may not receive the
distributions on liquidation that they would
otherwise be entitled to if our assets were to be located within the
U.S., under U.S. bankruptcy law.





Adverse
changes in economic and political policies of the PRC government could have a
material adverse effect on the overall economic growth of China, which could
adversely affect our business.




All of
our business operations are currently conducted in the PRC, under the
jurisdiction of the PRC government.  Accordingly, our results of
operations, financial condition and prospects are subject to a significant
degree to economic, political and legal developments in
China.  China’s economy differs from the economies of most developed
countries in many respects, including with respect to the amount of government
involvement, level of development, growth rate, and control of foreign exchange
and allocation of resources.  While the PRC economy has experienced
significant growth in the past 20 years, growth has been uneven across different
regions and among various economic sectors of China.  The PRC
government has implemented various measures to encourage economic development
and guide the allocation of resources.  Some of these measures benefit
the overall PRC economy, but may also have a negative effect on
us.  For example, our financial condition and results of operations
may be adversely affected by government control over capital investments or
changes in tax regulations that are applicable to us.  Since early
2004, the PRC government has implemented certain measures to control the pace of
economic growth.  Such measures may cause a decrease in the level of
economic activity in China, which in turn could adversely affect our results of
operations and financial condition.





Unprecedented
rapid economic growth in China may increase our costs of doing business, and may
negatively impact our profit margins and/or profitability.





Our
business depends in part upon the availability of relatively low-cost labor and
materials.  Rising wages in China may increase our overall costs of
production.  In addition, rising raw material costs, due to strong
demand and greater scarcity, may increase our overall costs of
production.  If we are not able to pass these costs on to our
customers in the form of higher prices, our profit margins and/or profitability
could decline.




17




You
may face difficulties in protecting your interests, and your ability to protect
your rights through the U.S. federal courts may be limited, because our
subsidiaries are incorporated in non-U.S. jurisdictions, we conduct
substantially all of our operations in China, and all of our officers reside
outside the United States.


Although
we are incorporated in Nevada, we conduct substantially all of our operations in
China through Yinglin Jinduren.  All of our officers and directors
reside outside the United States and some or all of the assets of those persons
are located outside of the United States.  As a result, it may be
difficult or impossible for you to bring an action against us or against these
individuals in China in the event that you believe that your rights have been
infringed under the securities laws or otherwise.  Even if you are
successful in bringing an action of this kind, the laws of the PRC may render
you unable to enforce a judgment against our assets or the assets of our
directors and officers.





As a
result of all of the above, our public shareholders may have more difficulty in
protecting their interests through actions against our management, directors or
major shareholders than would shareholders of a corporation doing business
entirely within the United States.





Governmental
control of currency conversion may affect the value of your
investment.




The
Chinese government imposes controls on the convertibility of RMB into foreign
currencies and, in certain cases, the remittance of currency out of China. We
receive substantially all of our revenues in RMB. Under our current structure,
our income is primarily derived from payments from Yinglin Jinduren. Shortages
in the availability of foreign currency may restrict the ability of our Chinese
subsidiaries and our affiliated entity to remit sufficient foreign currency to
pay dividends or other payments to us, or otherwise satisfy their foreign
currency denominated obligations. Under existing Chinese foreign exchange
regulations, payments of current account items, including profit distributions,
interest payments and expenditures from trade-related transactions, can be made
in foreign currencies without prior approval from China State Administration of
Foreign Exchange by complying with certain procedural requirements. However,
approval from appropriate government authorities is required where RMB is to be
converted into foreign currency and remitted out of China to pay capital
expenses such as the repayment of bank loans denominated in foreign currencies.
The Chinese government may also at its discretion restrict access in the future
to foreign currencies for current account transactions. If the foreign exchange
control system prevents us from obtaining sufficient foreign currency to satisfy
our currency demands, we may not be able to pay dividends in foreign currencies
to our stockholders.





Fluctuation
in the value of RMB may have a material adverse effect on your
investment.




The value
of RMB against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in political and economic conditions.
Our revenues and costs are mostly denominated in RMB, while a significant
portion of our financial assets are denominated in U.S. dollars. We rely
entirely on fees paid to us by our affiliated entity in China. Any significant
fluctuation in the value of RMB may materially and adversely affect our cash
flows, revenues, earnings and financial position, and the value of, and any
dividends payable on, our stock in U.S. dollars. For example, an appreciation of
RMB against the U.S. dollar would make any new RMB denominated investments or
expenditures more costly to us, to the extent that we need to convert U.S.
dollars into RMB for such purposes. An appreciation of RMB against the U.S.
dollar would also result in foreign currency translation losses for financial
reporting purposes when we translate our U.S. dollar denominated financial
assets into RMB, as RMB is our reporting currency.





Dividends
we receive from our subsidiary located in the PRC may be subject to PRC
withholding tax.





The
recently enacted PRC Enterprise Income Tax Law, or the EIT Law, and the
implementation regulations for the EIT Law issued by the PRC State Council,
became effective as of January 1, 2008. The EIT Law provides that a maximum
income tax rate of 20% is applicable to dividends payable to non-PRC investors
that are “non-resident enterprises,” to the extent such dividends are derived
from sources within the PRC, and the State Council has reduced such rate to 10%
through the implementation regulations. We are a Nevada holding company and
substantially all of our income is derived from the operations of Yinglin
Jinduren located in the PRC, which is contractually obligated to pay its
quarterly profits to our WFOE. Therefore, dividends paid to us by our WFOE in
China may be subject to the 10% income tax if we are considered as a
“non-resident enterprise” under the EIT Law. If we are required under the EIT
Law and its implementation regulations to pay income tax for any dividends we
receive from our WFOE, it may have a material and adverse effect on our net
income and materially reduce the amount of dividends, if any, we may pay to our
shareholders.





We
face risks related to health epidemics and other outbreaks.





Our
business could be adversely affected by the effects of an epidemic outbreak,
such as the SARS epidemic in April 2003. Any prolonged recurrence of such
adverse public health developments in China may have a material adverse effect
on our business operations. For instance, health or other government regulations
adopted in response may require temporary closure of our stores or offices. Such
closures would severely disrupt our business operations and adversely affect our
results of operations. We have not adopted any written preventive measures or
contingency plans to combat any future outbreak of SARS or any other
epidemic.


18





Risks
Related to an Investment in Our Securities




Our
common stock has limited liquidity.





Our
common stock is traded on the Over-the-Counter Bulletin Board. It is thinly
traded compared to larger more widely known companies in the same industry.
Thinly traded common stock can be more volatile than stock trading in an active
public market. We cannot predict the extent to which an active public market for
our common stock will develop or be sustained.





Our
stock is categorized as a penny stock.  Trading of our stock may be
restricted by the SEC’s penny stock regulations which may limit a shareholder’s
ability to buy and sell our stock.





Our stock
is categorized as a penny stock. The SEC has adopted Rule 15g-9 which generally
defines “penny stock” to be any equity security that has a market price (as
defined) less than $5.00 per share or an exercise price of less than $5.00 per
share, subject to certain exceptions. Our securities are covered by the penny
stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
accredited investors. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the SEC which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer’s
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customer’s confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules; the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser’s written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock
rules.  Consequently, these penny stock rules may affect the ability
of broker-dealers to trade our securities. We believe that the penny stock rules
discourage investor interest in and limit the marketability of our common
stock.





FINRA sales
practice requirements may also limit a shareholder’s ability to buy and sell our
stock.





In
addition to the “penny stock” rules described above, FINRA has adopted rules
that require that in recommending an investment to a customer, a broker-dealer
must have reasonable grounds for believing that the investment is suitable for
that customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customer’s financial status, tax status, investment
objectives and other information. Under interpretations of these rules, FINRA
believes that there is a high probability that speculative low priced securities
will not be suitable for at least some customers. The FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our
common stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.





We
expect to experience volatility in our stock price, which could negatively
affect shareholders’ investments.





The
market price for shares of our common stock may be volatile and may fluctuate
based upon a number of factors, including, without limitation, business
performance, news announcements or changes in general market
conditions.





Other
factors, in addition to the those risks included in this section, that may have
a significant impact on the market price of our common stock include, but are
not limited to:





·
            receipt
      of substantial orders or order cancellations of
  products;





·
            quality
      deficiencies in services or
products;





·
            international
      developments, such as technology mandates, political developments or
      changes   in economic
policies;





·
            changes
      in recommendations of securities
analysts;





·
            shortfalls
      in our backlog, revenues or earnings in any given period relative to the
        levels expected by securities analysts or projected by
      us;





·
            government
      regulations, including stock option accounting and tax
      regulations;





·
            energy
      blackouts;





·
            acts
      of terrorism and war;





·
            widespread
      illness;


19


·
            proprietary
      rights or product or patent
litigation;





·
            strategic
      transactions, such as acquisitions and
  divestitures;





·
            rumors
      or allegations regarding our financial disclosures or practices;
      or





·
            earthquakes
      or other natural disasters concentrated in Fujian, China where a
      significant  portion of our operations are
  based.





In the
past, securities class action litigation has often been brought against a
company following periods of volatility in the market price of its
securities.  Due to changes in the volatility of our common stock
price, we may be the target of securities litigation in the
future.  Securities litigation could result in substantial costs and
divert management’s attention and resources.





No
cash dividends will be paid in the foreseeable future.





We do not
anticipate paying cash dividends on our common stock in the foreseeable future
and we may not have sufficient funds legally available to pay
dividends.  Even if the funds are legally available for distribution,
we may nevertheless decide not to pay any dividends.  We presently
intend to retain all earnings for our operations.





Our
common shares are not currently traded at high volume, and you may be unable to
sell at or near ask prices or at all if you need to sell or liquidate a
substantial number of shares at one time.





We cannot
predict the extent to which an active public market for its common stock will
develop or be sustained.  However, we do not rule out the possibility
of applying for listing on the NYSE Alternext (formerly known as the American
Stock Exchange) or Nasdaq Capital Market or other markets.





Our
common shares are currently traded, but currently with low volume, based on
quotations on the “Over-the-Counter Bulletin Board”, meaning that the number of
persons interested in purchasing our common shares at or near bid prices at any
given time may be relatively small or non-existent.  This situation is
attributable to a number of factors, including the fact that we are a small
company which is still relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven company such as ours or purchase or recommend the purchase of our
shares until such time as we became more seasoned and viable.  As a
consequence, there may be periods of several days or more when trading activity
in our shares is minimal or non-existent, as compared to a seasoned issuer which
has a large and steady volume of trading activity that will generally support
continuous sales without an adverse effect on share price.  We cannot
give you any assurance that a broader or more active public trading market for
our common stock will develop or be sustained, or that trading levels will be
sustained.





Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
“penny stocks” has suffered in recent years from patterns of fraud and
abuse.  Such patterns include (1) control of the market for the
security by one or a few broker-dealers that are often related to the promoter
or issuer; (2) manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases; (3) boiler room practices
involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask differential
and markups by selling broker-dealers; and (5) the wholesale dumping of the same
securities by promoters and broker-dealers after prices have been manipulated to
a desired level, along with the resulting inevitable collapse of those prices
and with consequent investor losses.  Our management is aware of the
abuses that have occurred historically in the penny stock
market.  Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.
The occurrence of these patterns or practices could increase the future
volatility of our share price.




Our
corporate actions are substantially controlled by our principal shareholders and
affiliated entities.





Our
principal shareholders, which includes our officers and directors, and their
affiliated entities, own approximately 59.98% of our outstanding shares of
common stock. These shareholders, acting individually or as a group, could exert
substantial influence over matters such as electing directors and approving
mergers or other business combination transactions.  In addition,
because of the percentage of ownership and voting concentration in these
principal shareholders and their affiliated entities, elections of our board of
directors will generally be within the control of these shareholders and their
affiliated entities. While all of our shareholders are entitled to vote on
matters submitted to our shareholders for approval, the concentration of shares
and voting control presently lies with these principal shareholders and their
affiliated entities. As such, it would be difficult for shareholders to propose
and have approved proposals not supported by management. There can be no
assurances that matters voted upon by our officers and directors in their
capacity as shareholders will be viewed favorably by all of our
shareholders.


20





The
elimination of monetary liability against our directors, officers and employees
under Nevada law and the existence of indemnification rights to our directors,
officers and employees may result in substantial expenditures by our company and
may discourage lawsuits against our directors, officers and
employees.





Our
Articles of Incorporation, as amended, contain a provision permitting us to
eliminate the liability of our directors for monetary damages to our company and
shareholders to the extent provided by Nevada law. We may also have contractual
indemnification obligations under our employment agreements with our officers.
The foregoing indemnification obligations could result in our company incurring
substantial expenditures to cover the cost of settlement or damage awards
against directors and officers, which we may be unable to
recoup.  These provisions and resultant costs may also discourage our
company from bringing a lawsuit against directors and officers for breaches of
their fiduciary duties, and may similarly discourage the filing of derivative
litigation by our shareholders against our directors and officers even though
such actions, if successful, might otherwise benefit our company and
shareholders.





Legislative
actions, higher insurance costs and potential new accounting pronouncements may
impact our future financial position and results of operations.





There
have been regulatory changes, including the Sarbanes-Oxley Act of 2002, and
there may potentially be new accounting pronouncements or additional regulatory
rulings that will have an impact on our future financial position and results of
operations. The Sarbanes-Oxley Act of 2002 and other rule changes as well as
proposed legislative initiatives following the Enron bankruptcy are likely to
increase general and administrative costs and expenses. In addition, insurers
are likely to increase premiums as a result of high claims rates over the past
several years, which we expect will increase our premiums for insurance
policies. Further, there could be changes in certain accounting
rules.  These and other potential changes could materially increase
the expenses we report under generally accepted accounting principles, and
adversely affect our operating results.





If
we fail to maintain an effective system of internal controls, we may not be able
to accurately report our financial results or prevent material
misstatements.





We are
subject to reporting obligations concerning our internal controls, under the
U.S. securities laws.  The SEC, as required by Section 404 of the
Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to
include a management report on such company’s internal controls over financial
reporting in its annual report, which contains management’s assessment of the
effectiveness of our internal controls over financial reporting.  In
addition, an independent registered public accounting firm must report on the
effectiveness of these controls beginning in 2009.  Our management may
conclude that our internal controls over our financial reporting are not
effective.  Moreover, even if our management concludes that our
internal controls over financial reporting are effective, our independent
registered public accounting firm may issue a report that is qualified if it is
not satisfied with our controls or the level at which our controls are
documented, designed, operated or reviewed.  Our reporting obligations
as a public company will place a significant strain on our management,
operational and financial resources and systems for the foreseeable
future.  Effective internal controls, particularly those related to
sales revenue recognition, are necessary for us to produce reliable financial
reports and are important to help prevent material misstatements, or in certain
extreme cases, fraud.  As a result, our failure to achieve and
maintain effective internal controls over financial reporting could result in
the loss of investor confidence in the reliability of our financial statements,
which in turn could harm our business and negatively impact the trading price of
our stock. Furthermore, we anticipate that we will incur considerable costs and
use significant management time and other resources in an effort to comply with
Section 404 and other requirements of the Sarbanes-Oxley Act.





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





Reference
is made to our Current Report on Form 8-K filed with the SEC on February 13,
2009, and our Annual Report on Form 10-K filed with the SEC on February 23,
2009.





Item
      3.
            Defaults
      upon Senior Securities.





None





Item
      4.
            Submission
      of Matters to a Vote of Securities
Holders.





None





Item
      5.
            Other
      Information.





None


21





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, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002 *31.2
              
              Certifications
      pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act
      of 1934, as amended, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002 *32.1
              
              Certifications
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 *32.2
              
              Certifications
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 *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.


22


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:  May
      20,  2009
                By:
                /s/ Qingqing WuQingqing
      Wu
                  Chief
      Executive Officer




23