U.S.
      SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-Q





Quarterly
      Report Under Section 13 or 15 (d) of


Securities
      Exchange Act of 1934





For
      the
      Period ended September 30, 2008





Commission
      File Number 333-139910





China
      Shoe Holdings, Inc.


(Name
      of
      small business issuer in its charter)





Nevada
            1712
            20-2234410(State
                or other jurisdiction
              of
                incorporation or organization)
            (Primary
                SIC Code)
            (IRS
                Employer Identification No.)




488
      Wai
      Qingsong Road,


Waigang,
      Jiading District, Shanghai


People's
      Republic of China 201800


011-86-21-59587756


(Address,
      including zip code, and telephone number,


including
      area code, of registrant's principal executive offices)





Gu
      Xianzhong, President and CEO


488
      Wai
      Qingsong Road


Waigang,
      Jiading District, Shanghai


People's
      Republic of China 201800


011-86-21-59587756


(Mailing
      Address of Agent for Service)





Check
      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 o





Large
                Accelerated Filero
            Accelerated
                Filero
            Non-Accelerated
                Filero
            Smaller
                Reporting Companyx





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





There
      were 119,445,571 shares of Common Stock outstanding as of November 15,
      2008.









**CHINA
                SHOE HOLDINGS, INC**
              
              **(Unaudited)**
              **Condensed
                Consolidated Financial Statements**
              **For
                The Nine Months Ended September 30,
                2008**








**CHINA
      SHOE HOLDINGS, INC**





**INDEX
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**Page**Condensed
                Consolidated BalanceSheets as of September 30, 2008 and December 31, 2007
            
            F-2Condensed
                Consolidated Statementsof
                Operations And Comprehensive (Loss) Income for the three and nine
                months
                ended September 30, 2008 and 2007
            
            F-3Condensed
                ConsolidatedStatements
                of Cash Flowsfor the nine months ended September 30, 2008 and 2007
            
            F-4Condensed
                ConsolidatedStatementof
                Stockholders’ Equity for the nine months ended September 30,
                2008
            
            F-5Notes
                  to Condensed Consolidated Financial Statements
            
            F-6
                to F-21









**CHINA
      SHOE HOLDINGS,** **INC**


**CONDENSED** **CONSOLIDATED
      BALANCE SHEETS**


**AS
      OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007**


**(Currency
      expressed in United States Dollars (“US$”)** **,
      except for number of shares)**


**(Unaudited)**




September 30, 2008
              
              December 31, 2007(Unaudited)
              
              (audited)**ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              470,381
              
              $
              706,823Accounts
                  receivable, trade
              
              
              1,523,554
              
              
              1,071,037Inventories,
                  net
              
              
              -
              
              
              529,574Other
                  receivables and prepayments
              
              
              156,025
              
              
              560,227Total
                  current assets
              
              
              2,149,960
              
              
              2,867,661Non-current
                  assets:Property,
                  plant and equipment, net
              
              
              1,552,514
              
              
              1,717,719**TOTAL
                  ASSETS**
              
              $
              3,702,474
              
              $
              4,585,380**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**Current
                  liabilities:Short-term
                  bank borrowings
              
              $
              51,205
              
              $
              170,903Accounts
                  payable, trade
              
              
              261,241
              
              
              500,491Income
                  tax payable
              
              
              35,442
              
              
              -Amounts
                  due to directors
              
              
              135,843
              
              
              76,049Amount
                  due to a related party
              
              
              45,354
              
              
              -Other
                  payables and accrued liabilities
              
              
              530,971
              
              
              386,208Total
                  current liabilities
              
              
              1,060,056
              
              
              1,133,651Stockholders’
                  equity:Preferred
                  stock, $0.001 par value; 10,000,000 shares authorized; no shares
                  issued
                  and outstanding as of September 30, 2008 and December 31,
                  2007
              
              
              -
              
              
              -Common
                  stock, $0.001 par value; 300,000,000 shares authorized; 119,445,571
                  and
                  100,000,000 shares issued and outstanding as of September 30, 2008
                  and
                  December 31, 2007
              
              
              119,445
              
              
              100,000Additional
                  paid-in capital
              
              
              2,937,150
              
              
              1,883,364Deferred
                  compensation cost
              
              
              (463,096
              )
              
              -Accumulated
                  other comprehensive income
              
              
              448,734
              
              
              225,226(Accumulated
                  deficit) retained earnings
              
              
              (399,815
              )
              
              1,243,1392,642,418
              
              
              3,451,729**TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY**
              
              $
              3,702,474
              
              $
              4,585,380





See
      accompanying notes to condensed consolidated financial statements.




F-2





**CHINA
      SHOE HOLDINGS, INC.**


**CONDENSED
      CONSOLIDATED STATEMENTS OF**


**OPERATIONS
      AND COMPREHENSIVE INCOME (LOSS)**


**FOR
      THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND
      2007**


**(Currency
      expressed in United States Dollars (“US$”), except for number of
      shares)**


**(Unaudited)**





Three months ended September 30,
            
            Nine months ended September 30,2008
            
            2007
            
            2008
            
            2007**OPERATING
                REVENUES**
            
            $
            605,621
            
            $
            2,299,786
            
            $
            5,269,683
            
            $
            5,428,658**COST
                OF REVENUE**
            
            
            312,010
            
            
            1,724,617
            
            
            3,525,625
            
            
            4,025,563**GROSS
                PROFIT**
            
            
            293,611
            
            
            575,169
            
            
            1,744,058
            
            
            1,403,095**OPERATING
                EXPENSES:**Depreciation
            
            
            12,730
            
            
            2,408
            
            
            37,791
            
            
            14,919Stock-based
                compensation
            
            
            36,667
            
            
            -
            
            
            60,135
            
            
            15,185Selling
                and marketing
            
            
            17,116
            
            
            -
            
            
            55,586
            
            
            -Impairment
                charge on buildings
            
            
            107,236
            
            
            -
            
            
            107,236
            
            
            -Provision
                for inventory losses
            
            
            2,389,602
            
            
            -
            
            
            2,389,602
            
            
            -General
                and administrative
            
            
            261,891
            
            
            285,643
            
            
            676,069
            
            
            683,434Total
                operating expenses
            
            
            2,825,242
            
            
            288,051
            
            
            3,326,419
            
            
            713,538**(LOSS)
                INCOME FROM OPERATIONS**
            
            
            (2,531,631
            )
            
            287,118
            
            
            (1,582,361
            )
            
            689,557**OTHER
                INCOME (EXPENSE):**Interest
                income
            
            
            2,160
            
            
            651
            
            
            3,657
            
            
            1,176Interest
                expense
            
            
            (4,038
            )
            
            (24,011
            )
            
            (12,299
            )
            
            (41,523
            )Total
                other expense
            
            
            (1,878
            )
            
            (23,360
            )
            
            (8,642
            )
            
            (40,347
            )**(LOSS)
                INCOME BEFORE INCOME TAX**
            
            
            (2,533,509
            )
            
            263,758
            
            
            (1,591,003
            )
            
            649,210Income
                tax expense
            
            
            (31,766
            )
            
            -
            
            
            (51,951
            )
            
            -**NET
                (LOSS) INCOME**
            
            $
            (2,565,275
            )
            $
            263,758
            
            $
            (1,642,954
            )
            $
            649,210Other
                comprehensive (loss) income:-
                Foreign currency translation gain (loss)
            
            
            (62,243
            )
            
            178,575
            
            
            223,508
            
            
            180,747**COMPREHENSIVE
                (LOSS) INCOME**
            
            $
            (2,627,518
            )
            $
            442,333
            
            $
            (1,419,446
            )
            $
            829,957Net
                (loss) income per share – Basic and diluted
            
            $
            (0.02
            )
            $
            0.00
            
            $
            (0.01
            )
            $
            0.01Weighted
                average shares outstanding – basic and diluted
            
            
            119,445,571
            
            
            100,000,001
            
            
            110,466,840
            
            
            80,077,235





See
      accompanying notes to condensed consolidated financial statements.




F-3




**CHINA
        SHOE HOLDINGS, INC.**
 **CONDENSED
        CONSOLIDATED** **STATEMENTS
        OF CASH FLOWS**
 **FOR
        THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007**
 **(Currency
        expressed in United States Dollars (“US$”))**
 **(Unaudited)**




Nine months ended September 30,2008
            
            2007**Cash
                flows from operating activities:**Net
                (loss) income
            
            $
            (1,642,954
            )
            $
            649,210Adjustments
                to reconcile net income to net cash (used in) provided by operating
                activities:Depreciation
            
            
            176,792
            
            
            146,440Impairment
                charge on buildings
            
            
            107,236
            
            
            -Provision
                for inventory losses
            
            
            2,389,602
            
            
            -Stock-based
                compensation
            
            
            60,135
            
            
            15,185Change
                in operating assets and liabilities:Accounts
                receivable, trade
            
            
            (368,628
            )
            
            (479,587
            )Inventories,
                net
            
            
            (1,836,174
            )
            
            (672,118
            )Other
                receivables and prepayments
            
            
            433,087
            
            
            (83,039
            )Value-added
                tax receivable
            
            
            -
            
            
            41,011Accounts
                payable, trade
            
            
            (267,905
            )
            
            269,368Income
                tax payable
            
            
            34,612
            
            
            (20,535
            )Amount
                due to directors
            
            
            56,395
            
            
            144,438Amount
                due to related party
            
            
            44,293
            
            
            -Other
                payables and accrued liabilities
            
            
            126,602
            
            
            233,464Net
                cash (used in) provided by operating activities
            
            
            (686,907
            )
            
            243,837**Cash
                flows from investing activities:**Purchase
                of property, plant and equipment
            
            
            (5,129
            )
            
            -Net
                cash used in investing activities
            
            
            (5,129
            )
            
            -**Cash
                flows from financing activities:**(Repayment
                of) proceeds from short-term bank borrowings
            
            
            (128,592
            )
            
            421,614Proceeds
                from private placement
            
            
            550,000
            
            
            -Repayment
                of restricted cash
            
            
            -
            
            
            (174,949
            )Net
                cash provided by financing activities
            
            
            421,408
            
            
            246,665Effect
                of exchange rate change on cash and cash equivalents
            
            
            34,186
            
            
            24,426**NET
                CHANGE IN CASH AND CASH EQUIVALENTS**
            
            
            (236,442
            )
            
            514,928**CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD**
            
            
            706,823
            
            
            335,474**CASH
                AND CASH EQUIVALENTS, END OF PERIOD**
            
            $
            470,381
            
            
            850,402**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:**Cash
                paid for income taxes
            
            $
            51,951
            
            $
            -Cash
                paid for interest expenses
            
            $
            12,299
            
            $
            41,523





See
      accompanying notes to condensed consolidated financial statements




F-4





**CHINA
      SHOE HOLDINGS,** **INC**


**CONDENSED
      CONSOLIDATED** **STATEMENT
      OF STOCKHOLDERS’ EQUITY**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**




Common Stock
              
              
              
              Deferred
              
              Accumulated
                other
              
              Retained
                earnings
              
              TotalNo. of shares
              
              Amount
              
              Additional
                paid-in capital
              
              compensation
                cost
              
              comprehensive
                income
              
              (accumulated
                deficit)
              
              stockholders’
                equityBalance
                  as of January 1, 2008
              
              
              100,000,001
              
              $
              100,000
              
              $
              1,883,364
              
              $
              -
              
              $
              225,226
              
              $
              1,243,139
              
              $
              3,451,729Shares
                  issued under private placement on January 30, 2008
              
              
              4,230,769
              
              
              4,231
              
              
              545,769
              
              
              -
              
              
              -
              
              
              -
              
              
              550,000Shares
                  issued for payment of commitment fees, non-cash
              
              
              571,429
              
              
              571
              
              
              39,429
              
              
              -
              
              
              -
              
              
              -
              
              
              40,000Shares
                  issued under Equity Incentive Plan
              
              
              14,643,372
              
              
              14,643
              
              
              468,588
              
              
              (463,096
              )
              
              -
              
              
              -
              
              
              20,135Net
                  loss for the period
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,642,954
              )
              
              (1,642,954
              )Foreign
                  currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              223,508
              
              
              -
              
              
              223,508Balance
                  as of September 30, 2008
              
              
              119,445,571
              
              $
              119,445
              
              $
              2,937,150
              
              $
              (463,096
              )
              $
              448,734
              
              $
              (399,815
              )
              $
              2,642,418





See
      accompanying notes to condensed consolidated financial statements




F-5


**CHINA
      SHOE HOLDINGS,** **INC**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**





**NOTE** **-** **1**  **BASIS
      OF PRESENTATION**





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared by management in accordance with both accounting principles generally
      accepted in the United States (“GAAP”), and the instructions to Form 10-Q and
      Rule 10-01 of Regulation S-X. Certain information and note disclosures normally
      included in audited financial statements prepared in accordance with generally
      accepted accounting principles have been condensed or omitted pursuant to those
      rules and regulations, although the Company believes that the disclosures made
      are adequate to make the information not misleading.





In
      the
      opinion of management, the consolidated balance sheet as of December 31, 2007
      which has been derived from audited financial statements and these unaudited
      condensed consolidated financial statements reflect all normal and recurring
      adjustments considered necessary to state fairly the results for the periods
      presented. The results for the period ended September 30, 2008 are not
      necessarily indicative of the results to be expected for the entire fiscal
      year
      ending December 31, 2008 or for any future period.





These
      unaudited condensed consolidated financial statements and notes thereto should
      be read in conjunction with the Management’s Discussion and the audited
      financial statements and notes thereto included in the Annual Report on Form
      10-K for the year ended December 31, 2007.





**NOTE 
      -** **2**  **ORGANIZATION
      AND BUSINESS BACKGROUND**





China
      Shoe Holdings, Inc. (the “Company” or “CHSH”) was incorporated in the State of
      Nevada on January 24, 2005 as Indigo Technologies, Inc. On June 6, 2007, CHSH
      changed its name to China Shoe Holdings, Inc. The principal activity of CHSH,
      through its subsidiaries, is engaged in the manufacturing of ladies fashion
      footwear for shoe retailers in Japan and China. Meanwhile, the Company also
      produces various types of shoe soles for the domestic market in the
      PRC.





On
      February 21, 2008, the Company, through its subsidiary, Shanghai Kanghong
      Yunheng Enterprise Development Company Limited, has established a company
      namely, Shanghai Kangjiesi Shoes Co., Ltd. to conduct the retail sales of shoes
      and leather products in the PRC. It was incorporated as a limited liability
      company under the laws of the PRC and its registered capital is amounted to
      $68,362 (equivalent to RMB 500,000).





Details
      of the Company’s subsidiaries are described below:





Name
            
            Place
                of
              incorporation
                and
              kind
                of legal entity
            
            Principal
                activities
              and
                place of
              operation
            
            Particulars
                of
              issued/
                registered
              share
                capital
            
            Effective
              interest
                heldWholly
                Success Technology Group Limited (“WSTG”)
            
            British
                Virgin Islands, a limited liability company
            
            Investment
                holding
            
            994,500
                issued shares of $1 each
            
            100%Shanghai
                Kanghong Yunheng Enterprise Development Company Limited
                (“SKYEDC”)
            
            PRC,
                a limited liability company
            
            Shoe
                manufacturing
            
            RMB
                15,000,000
            
            100%Shanghai
                Kangjiesi Shoes Co., Ltd. (“SKSCL”)
            
            PRC,
                a limited liability company
            
            Shoe
                retailing
            
            RMB
                500,000
            
            100%





All
      the
      companies above are collectively known as “the Company” in these condensed
      consolidated financial statements.




F-6





**CHINA
      SHOE HOLDINGS,** **INC**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**





**NOTE
      -** **3**  **GOING
      CONCERN UNCERTAINTY**





The
      accompanying condensed consolidated financial statements have been prepared
      on
      the basis that the Company will continue as a going concern which assumes the
      realization of assets and settlement of liabilities in the normal course of
      business. For the period ended September 30, 2008, the Company incurred a net
      loss of $1,642,954 and generated a negative cash flow of $686,907 from operating
      activities. At September 30, 2008, the Company had an accumulated deficit of
      $399,815. The Company is experiencing difficulty in generating sufficient cash
      flow to meet its obligations and sustain its operations, which raises
      substantial doubt about its ability to continue as a going concern. The
      condensed consolidated financial statements do not include any adjustments
      that
      might result from the outcome of this uncertainty.





In
      order
      to improve the Company's liquidity, the Company is actively pursing additional
      equity and or debt financing through discussions with investment bankers and
      private investors. There can be no assurance the Company will be successful
      in
      its effort to secure additional equity and or debt financing.





**NOTE
      -** **4**  **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





l
            Use
                of estimates





In
      preparing these condensed consolidated financial statements, management makes
      estimates and assumptions that affect the reported amounts of assets and
      liabilities in the balance sheets and revenues and expenses during the period
      reported. Actual results may differ from these estimates.





l
            Basis
                of consolidation





The
      condensed consolidated financial statements include the financial statements
      of
      CHSH and its subsidiaries.





All
      significant inter-company balances and transactions within the Company have
      been
      eliminated upon consolidation.





l
            Cash
                and cash equivalents





Cash
      and
      cash equivalents are carried at cost and represent cash on hand, demand deposits
      placed with banks or other financial institutions and all highly liquid
      investments with an original maturity of three months or less as of the purchase
      date of such investments.




F-7




**CHINA
      SHOE HOLDINGS, INC**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**





l
            Accounts
                receivable, trade





Accounts
      receivable are recorded at the invoiced amount and do not bear interest. The
      Company extends unsecured credit to its customers in the ordinary course of
      business but mitigates the associated risks by performing credit checks and
      actively pursuing past due accounts. An allowance for doubtful accounts is
      established and determined based on managements’ assessment of known
      requirements, aging of receivables, payment history, the customer’s current
      credit worthiness and the economic environment. As of September 30, 2008, the
      Company recorded no allowance for doubtful accounts.





l
                Inventories





Inventories
      include direct materials, labor and factory overhead and are stated at lower
      of
      cost or market value, cost being determined on a FIFO. The Company periodically
      reviews historical sales activity to determine excess, slow moving items and
      potentially obsolete items and also evaluates the impact of any anticipated
      changes in future demand. Due to changing marketing conditions in the shoe
      industry, the Company has made a provision for inventory losses of $2,389,602
      to
      charge against operations for the period ended September 30, 2008 to write
      down
      inventory to net realizable value. This was based on the Company’s best
      estimates of product sales prices and customer demand patterns, and its plans
      to
      transition its products. It is at least reasonably possible that the estimates
      used by the Company to determine its provision of inventory losses will be
      materially different from the actual amounts or results. These differences
      could
      result in materially higher than expected inventory provision, which could
      have
      a materially adverse effect on the Company’s results of operations and financial
      position in the near term.





l
            Property,
                plant and equipment, net





Property,
      plant and equipment are stated at cost less accumulated depreciation and
      accumulated impairment losses, if any. Depreciation is calculated on the
      straight-line basis over the following expected useful lives from the date
      on
      which they become fully operational and after taking into account their
      estimated residual values:


Depreciable life
            
            Residual valueBuildings
            
            
            20
                years
            
            
            5
            %Plant
                and machinery
            
            
            10
                years
            
            
            5
            %Office
                equipments
            
            
            10
                years
            
            
            5
            %Motor
                vehicles
            
            
            5
                years
            
            
            5
            %





Expenditure
      for maintenance and repairs is expensed as incurred. When assets have retired
      or
      sold, the cost and related accumulated depreciation are removed from the
      accounts and any resulting gain or loss is recognized in the results of
      operations.





l
            Impairment
                of long-lived assets





In
      accordance with SFAS No. 144, *“Accounting
      for the Impairment or Disposal of Long-Lived Assets”* ,
      long-lived assets and certain identifiable intangible assets held and used
      by
      the Company are reviewed for impairment whenever events or changes in
      circumstances indicate that the carrying amount of an asset may not be
      recoverable. Recoverability
      of assets to be held and used is evaluated by a comparison of the carrying
      amount of assets to estimated discounted net cash flows expected to be generated
      by the assets. If such assets are considered to be impaired, the impairment
      to
      be recognized is measured by the amount by which the carrying amounts of the
      assets exceed the fair value of the assets. As of September 30, 2008, the
      Company has provided an impairment charge of $107,236 on its
      buildings.




F-8




**CHINA
      SHOE HOLDINGS,** **INC**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**





l
            Revenue
                recognition





The
      Company derives revenues from the sale of self-manufactured products. The
      Company recognizes its revenues net of value added taxes (“VAT”). The Company is
      subject to VAT which is levied on the majority of the products of Shanghai
      at
      the rate ranging from 4% to 17% on the invoiced value of sales. Output VAT
      is
      borne by customers in addition to the invoiced value of sales and input VAT
      is
      borne by the Company in addition to the invoiced value of purchases to the
      extent not refunded for export sales.





In
      accordance with the SEC’s Staff Accounting Bulletin No. 104, *Revenue
      Recognition* ,
      the
      Company recognizes revenue when persuasive evidence of an arrangement exists,
      transfer of title has occurred or services have been rendered, the selling
      price
      is fixed or determinable and collectibility is reasonably assured.





(a)  Sale
      of
      products





The
      Company recognizes revenue from the sale of products upon delivery to the
      customers and the transfer of title and risk of loss. The Company experienced
      no
      product returns and has recorded no reserve for sales returns for the nine
      months ended September 30, 2008.





(b)  Interest
      income





Interest
      income is recognized on a time apportionment basis, taking into account the
      principal amounts outstanding and the interest rates applicable.





l
                Cost
                    of revenue





Cost
      of
      revenues consists primarily of material costs, direct labor, depreciation and
      manufacturing overheads, which are directly attributable to the manufacture
      of
      products.





l
            Income
                taxes





The
      Company accounts for income tax using SFAS No. 109 *“Accounting
      for Income Taxes”* ,
      which
      requires the asset and liability approach for financial accounting and reporting
      for income taxes. Under this approach, deferred income taxes are provided for
      the estimated future tax effects attributable to temporary differences between
      financial statement carrying amounts of assets and liabilities and their
      respective tax bases, and for the expected future tax benefits from loss
      carry-forwards and provisions, if any. Deferred tax assets and liabilities
      are
      measured using the enacted tax rates expected in the years of recovery or
      reversal and the effect from a change in tax rates is recognized in the
      condensed consolidated statement of operations and comprehensive income in
      the
      period of enactment. A valuation allowance is provided to reduce the amount
      of
      deferred tax assets if it is considered more likely than not that some portion
      of, or all of the deferred tax assets will not be realized.





The
      Company also adopts Financial Accounting Standards Board ("FASB") Interpretation
      No. (FIN) 48, *"Accounting
      for Uncertainty in Income Taxes"* and FSP
      FIN 48-1, which amended certain provisions of FIN 48. FIN 48 clarifies the
      accounting for uncertainty in income taxes recognized in the financial
      statements in accordance with SFAS No. 109, *“Accounting
      for Income Taxes.”*  FIN 48provides
      that a tax benefit from an uncertain tax position may be recognized when it
      is
      more likely than not that the position will be sustained upon examination,
      including resolutions of any related appeals or litigation processes, based
      on
      the technical merits. Income tax positions must meet a more-likely-than-not
      recognition threshold at the effective date to be recognized upon the adoption
      of FIN 48and in
      subsequent periods. This interpretation also provides guidance on measurement,
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition.




F-9


**CHINA
      SHOE HOLDINGS, INC**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**





In
      connection with the adoption of FIN 48, the Company analyzed the filing
      positions in all of the federal, state and foreign jurisdictions where the
      Company and its subsidiaries are required to file income tax returns, as well
      as
      all open tax years in these jurisdictions. The Company adopted the policy of
      recognizing interest and penalties, if any, related to unrecognized tax
      positions as income tax expense. The Company did not have any unrecognized
      tax
      positions or benefits and there was no effect on the financial condition or
      results of operations for the period ended September 30, 2008.





The
      Company conducts its major businesses in the PRC and is subject to tax in this
      jurisdiction. As a result of its business activities, the Company files tax
      returns that are subject to examination by the local and foreign tax
      authorities.





l
            Net
                income (loss) per share





The
      Company calculates net income (loss) per share in accordance with SFAS No.
      128, *“Earnings
      per Share.”* Basic
      income (loss) per share is computed by dividing the net income (loss) by the
      weighted-average number of common shares outstanding during the period. Diluted
      income (loss) per share is computed similar to basic income (loss) per share
      except that the denominator is increased to include the number of additional
      common shares that would have been outstanding if the potential common stock
      equivalents had been issued and if the additional common shares were
      dilutive.





l
            Comprehensive
                income





SFAS
      No.
      130, *“Reporting
      Comprehensive Income”* ,
      establishes standards for reporting and display of comprehensive income, its
      components and accumulated balances. Comprehensive income as defined includes
      all changes in equity during a period from non-owner sources. Accumulated
      comprehensive income consists of changes in unrealized gains and losses on
      foreign currency translation. This comprehensive income is not included in
      the
      computation of income tax expense or benefit.





l
            Foreign
                currencies translation





Transactions
      denominated in currencies other than the functional currency are translated
      into
      the functional currency at the exchange rates prevailing at the dates of the
      transaction. Monetary assets and liabilities denominated in currencies other
      than the functional currency are translated into the functional currency using
      the applicable exchange rates at the balance sheet dates. The resulting exchange
      differences are recorded in the consolidated statement of
      operations.





The
      reporting currency of the Company is the United States dollar ("US$"). The
      Company's subsidiaries in the PRC, SKYEDC and SKSCL maintain their books and
      records in its local currency, Renminbi Yuan ("RMB"), which is functional
      currency as being the primary currency of the economic environment in which
      these entities operate.





In
      general, for consolidation purposes, assets and liabilities of its
      subsidiaries whose functional currency is not the US dollars are
      translated into US dollars, in accordance with SFAS No. 52, “ *Foreign
      Currency Translation”* ,
      using
      the exchange rate on the balance sheet date. Revenues and expenses are
      translated at average rates prevailing during the period. The gains and losses
      resulting from translation of financial statements of foreign subsidiaries
      are
      recorded as a separate component of accumulated other comprehensive income
      within the statement of stockholders’ equity.




F-10




**CHINA
      SHOE HOLDINGS, INC**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**





Translation
      of amounts from RMB into US$
      has
      been made at the following exchange rates for the respective
      period:


2008
            
            2007Months
                end RMB:US$ exchange rate
            
            
            6.8351
            
            
            7.4960Average
                monthly RMB:US$ exchange rate
            
            
            6.9989
            
            
            7.5643





l
            Related
                parties





Parties,
      which can be a corporation or individual, are considered to be related if the
      Company has the ability, directly or indirectly, to control the other party
      or
      exercise significant influence over the other party in making financial and
      operating decisions. Companies are also considered to be related if they are
      subject to common control or common significant influence.





l
            Segment
                reporting





SFAS
      No.
      131, *“Disclosures
      about Segments of an Enterprise and Related Information”* establishes standards for reporting information about operating segments on
      a
      basis consistent with the Company’s internal organization structure as well as
      information about geographical areas, business segments and major customers
      in
      the financial statements. The Company operates in one principal reportable
      segment in Japan and the PRC.





l
            Fair
                value of financial instruments





The
      Company values its financial instruments as required by Statement of Financial
      Accounting Standard (SFAS) No. 107, “ *Disclosures
      about Fair Value of Financial Instruments* ”.
      The
      estimated fair value amounts have been determined by the Company, using
      available market information and appropriate valuation methodologies. The
      estimates presented herein are not necessarily indicative of amounts that the
      Company could realize in a current market exchange.





The
      Company’s financial instruments primarily consist of cash and cash equivalents,
      accounts receivable, other receivables and prepayments, short-term bank loan,
      accounts payable, amount due to directors and related party, income tax payable,
      other payables and accrued liabilities.





As
      of the
      balance sheet date, the estimated fair values of the financial instruments
      were
      not materially different from their carrying values as presented due to the
      short term maturities of these instruments and that the interest rates on the
      borrowings approximate those that would have been available for loans of similar
      remaining maturity and risk profile at respective period ends.





l
                Recently
                    issued accounting
                    standards





The
      Company has reviewed all recently issued, but not yet effective, accounting
      pronouncements and do not believe the future adoption of any such pronouncements
      may be expected to cause a material impact on its financial condition or the
      results of its operations.





In
      December 2007, the FASB issued SFAS No. 141 (Revised 2007), *"Business
      Combinations"* ("SFAS
      No. 141R"). SFAS No. 141R will change the accounting for business combinations.
      Under SFAS No. 141R, an acquiring entity will be required to recognize all
      the
      assets acquired and liabilities assumed in a transaction at the acquisition-date
      fair value with limited exceptions. SFAS No. 141R will change the accounting
      treatment and disclosure for certain specific items in a business combination.
      SFAS No. 141R applies prospectively to business combinations for which the
      acquisition date is on or after the beginning of the first annual reporting
      period beginning on or after December 15, 2008. Accordingly, any business
      combinations the Company engages in will be recorded and disclosed following
      existing GAAP until January 1, 2009. The Company expects SFAS No. 141R will
      have
      an impact on accounting for business combinations once adopted but the effect
      is
      dependent upon acquisitions at that time. The Company is still assessing the
      impact of this pronouncement.




F-11


**CHINA
      SHOE HOLDINGS, INC**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**





In
      December 2007, the FASB issued SFAS No. 160, *"Noncontrolling
      Interests in Consolidated Financial Statements--An Amendment of ARB No. 51,
      or
      SFAS No. 160"* ("SFAS
      No. 160"). SFAS No. 160 establishes new accounting and reporting standards
      for
      the noncontrolling interest in a subsidiary and for the deconsolidation of
      a
      subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after
      December 15, 2008. The Company believes that SFAS 160 should not have a material
      impact on the consolidated financial position or results of
      operations.





In
      March
      2008, the FASB issued SFAS No. 161, *"Disclosures
      about Derivative Instruments and Hedging Activities"* ("SFAS
      No. 161"). SFAS 161 requires companies with derivative instruments to disclose
      information that should enable financial-statement users to understand how
      and
      why a company uses derivative instruments, how derivative instruments and
      related hedged items are accounted for under FASB Statement No. 133 *"Accounting
      for Derivative Instruments and Hedging Activities"* and how
      derivative instruments and related hedged items affect a company's financial
      position, financial performance and cash flows. SFAS 161 is effective for
      financial statements issued for fiscal years and interim periods beginning
      after
      November 15, 2008. The adoption of this statement is not expected to have a
      material effect on the Company's future financial position or results of
      operations.




In
      May
      2008, the FASB issued SFAS No. 162, *“The
      Hierarchy of Generally Accepted Accounting Principles”* (“SFAS
      No. 162”). This statement identifies the sources of accounting principles
      and the framework for selecting the principles to be used in the preparation
      of
      financial statements in conformity with generally accepted accounting principles
      (GAAP) in the United States. This statement is effective 60 days following
      the
      SEC’s approval of the Public Company Accounting Oversight Board amendments to AU
      Section 411, *“The
      Meaning of Present Fairly in Conformity With Generally Accepted Accounting
      Principles”* .
      The
      Company does not expect the adoption of SFAS No. 162 to have a material
      effect on the financial condition or results of operations of the
      Company.





In
      May
      2008, the FASB issued SFAS No. 163, *“Accounting
      for Financial Guarantee Insurance Contracts--an interpretation of FASB Statement
      No. 60”* ("SFAS
      No. 163"). SFAS No. 163 interprets Statement 60 and amends existing accounting
      pronouncements to clarify their application to the financial guarantee insurance
      contracts included within the scope of that Statement. SFAS No. 163 is effective
      for financial statements issued for fiscal years beginning after December 15,
      2008, and all interim periods within those fiscal years. As such, the Company
      is
      required to adopt these provisions at the beginning of the fiscal year ended
      December 31, 2009. The Company is currently evaluating the impact of SFAS No.
      163 on its financial statements but does not expect it to have an effect on
      the
      Company's financial position, results of operations or cash flows.





Also
      in
      May 2008, the FASB issued FSP APB 14-1, " *Accounting
      for Convertible Debt Instruments that may be Settled in Cash upon Conversion
      (Including Partial Cash Settlement)"* ("FSP
      APB 14-1"). FSP APB 14-1 applies to convertible debtsecurities that, upon conversion, may be settled by the issuer fully or
      partially in cash. FSP APB 14-1 specifies that issuers of such instruments
      should separately account for the liability and equity components in a manner
      that will reflect the entity's nonconvertible debt borrowing rate when interest
      cost is recognized in subsequent periods. FSP APB 14-1 is effective for
      financial statements issued for fiscal years after December 15, 2008, and must
      be applied on a retrospective basis. Early adoption is not permitted. The
      Company does not expect it to have an effect on the Company's financial
      position, results of operations or cash flows.




F-12




**CHINA
      SHOE HOLDINGS, INC**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**





In
      June
      2008, the FASB issued FASB Staff Position ("FSP") EITF 03-6-1, *"Determining
      Whether Instruments Granted in Share-Based Payment Transactions Are
      Participating Securities"* ("FSP
      EITF 03-6-1"). FSP EITF 03-6-1 addresses whether
      instruments granted in share-based payment transactions are participating
      securities prior to vesting, and therefore need to be included in the earnings
      allocation in computing earnings per share under the two-class method as
      described in SFAS No. 128, Earnings per Share. Under the guidance of FSP EITF
      03-6-1, unvested share-based payment awards that contain nonforfeitable rights
      to dividends or dividend equivalents (whether paid or unpaid) are participating
      securities and shall be included in the computation of earnings-per-share
      pursuant to the two-class method. FSP EITF 03-6-1 is effective for financial
      statements issued for fiscal years beginning after December 15, 2008 and all
      prior-period earnings per share data presented shall be adjusted
      retrospectively. Early application is not permitted. The Company does not expect
      it to have an effect on the Company's financial position, results of operations
      or cash flows.





Also
      in
      June 2008, the FASB ratified EITF No. 07-5, " *Determining
      Whether an Instrument (or an Embedded Feature) is Indexed to an Entity's Own
      Stock* "
      ("EITF
      07-5"). EITF 07-5 provides that an entity
      should use a two-step approach to evaluate whether an equity-linked financial
      instrument (or embedded feature) is indexed to its own stock,
      including evaluating the instrument's contingent exercise and settlement
      provisions. EITF 07-5 is effective for financial statements issued for fiscal
      years beginning after December 15, 2008. Early application is not permitted.
      The
      Company is assessing the potential impact of this EITF 07-5 on the financial
      condition and results of operations and does not expect it to have an effect
      on
      the Company's financial position, results of operations or cash
      flows.





**NOTE 
      -** **5**  **ACCOUNTS
      RECEIVABLE, TRADE**





The
      majority of the Company’s sales are on open credit terms and in accordance with
      terms specified in the contracts governing the relevant transactions. The
      Company evaluates the need of an allowance for doubtful accounts based on
      specifically identified amounts that management believes to be uncollectible.
      If
      actual collections experience changes, revisions to the allowance may be
      required. Based upon the aforementioned criteria, management has determined
      that
      no allowance for doubtful accounts is required for the nine months ended
      September 30, 2008 and 2007.





**NOTE
      -** **6**  **INVENTORIES,
      NET**





September 30, 2008
            
            December 31, 2007(Unaudited)
            
            (Audited)Raw
                materials
            
            $
            1,675,692
            
            $
            224,795Work-in-progress
            
            
            92,311
            
            
            124,214Finished
                goods
            
            
            678,850
            
            
            180,5652,446,853
            
            
            529,574Less:
                provision for inventory losses
            
            
            (2,389,602
            )
            
            -Less:
                foreign translation difference
            
            
            (57,251
            )
            
            -$
            -
            
            $
            529,574





Due
      to
      changing marketing conditions in the shoe industry, the Company has ceased
      the
      production lines and made a provision for inventory losses of $2,389,602 to
      write down inventory to net realizable value for the period ended September
      30,
      2008.




F-13




**CHINA
      SHOE HOLDINGS, INC**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**





**NOTE
      -** **7**  **OTHER
      RECEIVABLES AND PREPAYMENTS**





Other
      receivables and prepayments consisted of the following:





September 30, 2008
            
            December 31, 2007(Unaudited)
            
            (Audited)Advances
                to employees
            
            $
            43,891
            
            $
            41,017Deposits
                and prepayments
            
            
            55,211
            
            
            457,973Other
                receivables
            
            
            56,923
            
            
            61,237$
            156,025
            
            $
            560,227





Other
      receivables represented temporary advances to various independent third parties
      and the Company is expected to collect the receivables within the next twelve
      months.




**NOTE
      -** **8**  **PROPERTY,
      PLANT AND EQUIPMENT, NET**





Property,
      plant and equipment, net, consisted of the following:





September 30, 2008
            
            December 31, 2007(Unaudited)
            
            (Audited)Buildings
            
            $
            403,046
            
            $
            403,046Plant
                and machinery
            
            
            1,822,779
            
            
            1,822,779Office
                equipment
            
            
            44,178
            
            
            38,954Motor
                vehicles
            
            
            29,452
            
            
            29,452Foreign
                translation difference
            
            
            390,124
            
            
            214,2992,689,579
            
            
            2,508,530Less:
                accumulated depreciation
            
            
            (887,090
            )
            
            (726,573
            )Less:
                impairment charge
            
            
            (107,236
            )
            
            -Less:
                foreign translation difference
            
            
            (142,739
            )
            
            (64,238
            )Property,
                plant and equipment, net
            
            $
            1,552,514
            
            $
            1,717,719





Depreciation
      expense for the three months ended September 30, 2008 and 2007 were $53,384
      and
      $48,813, which included $40,654 and $46,405 in cost of revenue,
      respectively.





Depreciation
      expense for the nine months ended September 30, 2008 and 2007 were $176,792
      and
      $146,440, which included $139,001 and $131,521 in cost of revenue,
      respectively.





For
      the
      nine months ended September 30, 2008, the Company tested for impairment under
      the SFAS No. 142 . Based
      on
      the current real estate market, the market value of the buildings was impaired
      and the Company recognized an impairment charge of $107,236 to write down its
      carrying value to the fair value at September 30, 2008.




F-14


**CHINA
      SHOE HOLDINGS, INC**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**





**NOTE
      -** **9**  **SHORT-TERM
      BANK BORROWINGS**





As
      of
      September 30, 2008, the short-term bank loans represented an outstanding amount
      of RMB350,000 (2007: RMB1,250,000) payable to a financial institution,
      guaranteed by an independent third party, with interest rate at 8.748% (2007:
      7.38%) per annum payable quarterly, with principals due on October 20,
      2008.





During
      October 2008, the Company fully repaid the short-term bank loans upon its
      maturity.





**NOTE
      -** **10**  **OTHER
      PAYABLES AND ACCRUED LIABILIITES**





Other
      payables and accrued liabilities consisted of the followings:





September 30, 2008
            
            December 31, 2007(Unaudited)
            
            (Audited)Salaries
                and welfare payable
            
            $
            -
            
            $
            79,347Advances
                from customers
            
            
            -
            
            
            13,395Accrued
                expenses
            
            
            135,992
            
            
            146,230Advances
                from third parties
            
            
            385,822
            
            
            109,378VAT
                payable
            
            
            9,157
            
            
            9,355Other
                payables
            
            
            -
            
            
            28,503$
            530,971
            
            $
            386,208





**NOTE
      -** **11**  **INCOME
      TAXES**





For
      the
      period ended September 30, 2008 and 2007, the local (“the United States”) and
      foreign components of (loss) income before income taxes were comprised of the
      following:





Nine months ended September 30,2008
            
            2007Tax
                jurisdictions:-
                Local
            
            $
            (143,093
            )
            $
            (24,145
            )-
                Foreign
            
            
            (1,447,910
            )
            
            673,355(Loss)
                income before income taxes
            
            $
            (1,591,003
            )
            $
            649,210





The
      provision for income taxes consisted of the following:





Nine months ended September 30,2008
            
            2007Current:-
                Local
            
            $
            -
            
            $
            --
                Foreign
            
            
            51,951
            
            
            -Deferred:-
                Local
            
            
            -
            
            
            --
                Foreign
            
            
            -
            
            
            -Provision
                for income taxes
            
            $
            51,951
            
            $
            -





F-15


**CHINA
      SHOE HOLDINGS, INC**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**





The
      effective tax rate in the periods presented is the result of the mix of income
      earned in various tax jurisdictions that apply a broad range of income tax
      rates. The Company has subsidiaries that operate in various countries: U.S.,
      British Virgin Islands and the PRC that are subject to tax in the jurisdictions
      in which they operate, as follows:





*United
      States of America*





CHSH
      is
      registered in the State of Nevada  and
      is
      subject to the tax laws of United States of America.





*British
      Virgin Islands*





Under
      the
      current BVI law, WSTG is not subject to tax on income. For the periods ended
      September 30, 2008 and 2007, WSTG did not generate any operating income or
      loss.





*The
      PRC*





All
      the
      Company’s PRC subsidiaries are subject to the Corporate Income Tax governed by
      the Income Tax Law of the PRC. On March 16, 2007, the National People’s Congress
      approved the Corporate Income Tax Law of the People’s Republic of China (the
“New CIT Law”). The new CIT Law, among other things, imposes a unified income
      tax rate of 25% for both domestic and foreign invested enterprises with effect
      from January 1, 2008.





Under
      the
      New CIT Law, SKYEDC and SKSCL are entitled to the tax rate reduction from 33%
      to
      25% that may impact the carrying value of deferred tax assets as a result of
      new
      tax rate. However, SKYEDC is considered a foreign investment enterprise and
      is
      subject to tax holidays from a full exemption of income tax for the first two
      profit making years with a 50% exemption of income tax (that is 30%) for the
      next three years. Its ultimate applicable effective tax rate in 2008 and beyond
      will depend on many factors, including but not limited to whether certain of
      its
      legal entity will be subject to a transitional policy under the Corporate Income
      Tax Law, whether SKYEDC can continue to enjoy the unexpired tax
      holidays.





The
      reconciliation of income tax rate to the effective income tax rate for the nine
      months ended September 30, 2008 and 2007 is as
      follows:


Nine months ended September 30,2008
            
            2007(Loss)
                income before taxes from PRC operation
            
            $
            (1,447,912
            )
            $
            681,844Statutory
                income tax rate
            
            
            25
            %
            
            33
            %Income
                tax at statutory tax rate
            
            
            (361,978
            )
            
            225,009Effect
                of tax non-deductible expenses
            
            
            624,230
            
            
            -Effect
                from tax holiday
            
            
            (210,301
            )
            
            (225,009
            )Income
                tax expenses
            
            $
            51,951
            
            $
            -





F-16


**CHINA
      SHOE HOLDINGS, INC**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**





The
      Company adopted the provisions of FIN 48 on January 1, 2007. This interpretation
      prescribes a recognition threshold and measurement attribute for the tax
      positions taken, or expected to be taken, on a tax return. The Company files
      tax
      returns in the various tax jurisdictions in which its subsidiaries operate
      in
      the PRC. The United States tax returns of its tax years 2006 to 2007 remain
      open
      to examination by IRS. The PRC 2007 tax returns have been filed and
      cleared.





**NOTE
      -** **12**  **AMOUNTS
      DUE TO DIRECTORS**





The
      amounts due to directors represented unsecured advances which are interest-free
      and have no fixed terms of repayment.





**NOTE
      -** **13**  **AMOUNT
      DUE TO A RELATED PARTY**





The
      balance due to the son of Mr. Gu Xianzhong represented unsecured advances which
      are interest-free and has no fixed terms of repayment.





**NOTE
      -** **14**  **CAPITAL
      TRANSACTIONS**





On
      January 30, 2008, the Company entered into a Regulation S Subscription Agreement
      (the “Agreement A”) with Mr. Yu Guorui, a resident and national of the PRC (the
“Investor”). Pursuant to the Agreement, the Company issued 4,230,769 shares of
      common stock to the Investor for $550,000 at a price of $0.13 per share. The
      price was
      negotiated by the parties and based upon the average closing price for the
      Company’s common stock at its market quoted price on the closing date during the
      month preceding the subscription agreement. The
      Company intends to utilize the funds received primarily on expansion of its
      retail store operations in China.





On
      March
      24, 2008, the Company entered into an Equity Line Agreement (the “ELA”) and a
      Registration Rights Agreement (the “RRA”) with Magellan Global Fund, L.P.
      (“Magellan”), a Delaware limited partnership, to issue and sell the common stock
      of the Company to Magellan up to $2,000,000. Upon execution of the ELA March
      24,
      2008, the Company issued 571,429 shares of restricted common stock at a price
      of
      $0.07 per share to ELA for the payment of commitment fees amounted to $40,000.
      The price was based on the closing bid price of the Company’s common stock at
      its market quoted price on the closing date of the sale of common
      stock.





On
      April
      25, 2008, the Company approved and adopted the 2008 Equity Incentive Plan (the
      “EIP”) for the purpose to provide additional incentive to employees, directors
      and consultants. The EIP permits the grant of incentive stock options,
      non-statutory stock options, restricted stock, restricted stock units, stock
      appreciation rights, performance units and performance shares. On May 1, 2008,
      the Company issued 14,643,372 shares of restricted common stock under the EIP
      with a fair market value of $0.033 per share. The fair market value was based
      on
      the last trade or closing ask price of the Company’s common stock on the over
      the
      counter bulletin board.





As
      of
      September 30, 2008 and December 31, 2007, the Company has 119,445,571 and
      100,000,000 shares of common stocks issued and outstanding.




F-17


**CHINA
      SHOE HOLDINGS, INC**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**





**NOTE
      -** **15**  **EQUITY
      INCENTIVE PLAN**





On
      April
      25, 2008, the Company approved and adopted the 2008 Equity Incentive Plan (the
      “EIP”) for the purpose to provide additional incentive to employees, directors
      and consultants. The EIP permits the grant of incentive stock options,
      non-statutory stock options, restricted stock, restricted stock units, stock
      appreciation rights, performance units and performance shares. On May 1, 2008,
      the Company granted an aggregate of 14,643,372 shares of restricted common
      stock
      under the EIP at a fair market value of $0.033 per share. The fair values of
      these restricted stock awards are equal to the fair value of the Company’s stock
      on the date of grant. Such restricted stock is subject to the risk of forfeiture
      upon the occurrence of certain events. During the nine months ended September
      30, 2008, the Company recognized $23,468 of compensation expense under the
      plan.
      As of September 30, 2008, $463,096 of unrecognized compensation expense related
      to the nonvested restricted stock is recorded as deferred compensation in equity
      and is expected to be recognized over a term of 4 years.





The
      following table summarizes the status of the Company’s nonvested restricted
      stock awards during the nine months ended September 30, 2008:





Nonvested restricted stock and stock unit
              awardsNumber of shares
            
            Weighted average
              grant date fair valuesOutstanding
                at beginning of period
            
            
            -
            
            $
            -Granted
            
            
            14,643,372
            
            
            0.033Vested
            
            
            (610,140
            )
            
            0.033Outstanding
                at end of period
            
            
            14,033,232
            
            $
            0.033





**NOTE
      -** **16**  **SEGMENT
      REPORTING, GEOGRAPHICAL INFORMATION**





The
      Company considers its business activities to constitute one single segment.
      The
      Company’s chief operating decision makers use these results to make operating
      and strategic decisions. The geographic distribution of the Company’s customers
      is located in Japan and the PRC.





An
      analysis of the Company’s revenues and net assets by region are as follows:





Three months ended September 30,2008
            
            2007Revenue:-
                Japan
            
            $
            196,219
            
            $
            139,786-
                The PRC
            
            
            409,402
            
            
            2,160,000$
            605,621
            
            $
            2,299,786





Nine months ended September 30,2008
            
            2007Revenue:-
                Japan
            
            $
            2,397,665
            
            $
            4,384,566-
                The PRC
            
            
            2,872,018
            
            
            1,044,092$
            5,269,683
            
            $
            5,428,658





F-18


**CHINA
      SHOE HOLDINGS, INC**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**





September 30, 2008
            
            December 31, 2007Net
                assets (liabilities):-
                U.S.
            
            $
            (419,046
            )
            $
            (12,126
            )-
                BVI
            
            
            (63,766
            )
            
            (69,352
            )-
                The PRC
            
            
            3,125,230
            
            
            3,533,207$
            2,642,418
            
            $
            3,451,729





**NOTE
      -** **17**  **CONCENTRATIONS
      OF RISK**





(a)  Major
      customers





For
      the
      nine months ended September 30, 2008 and 2007, 100% of the Company’s assets were
      located in the PRC. 66% and 75% of the Company’s revenues were derived from
      customers located in Japan for the three and nine months ended September 30,
      2008.





For
      the
      three months ended September 30, 2008, customers who account for 10% or more
      of
      revenues are presented as follows:


Customers
            
            Revenues
            
            Percentage
              of revenues
            
            
            
            Accounts
              receivable, tradeCustomer
                A
            
            $
            129,925
            
            
            22
            %
            
            
            
            $
            264,494Customer
                B
            
            
            98,707
            
            
            16
            %
            
            
            
            
            94,153Customer
                C
            
            
            86,322
            
            
            14
            %
            
            
            
            
            267,523Total:
            
            $
            314,954
            
            
            52
            %
            
            Total:
            
            $
            626,170





For
      the
      nine months ended September 30, 2008, customers who account for 10% or more
      of
      revenues are presented as follows:


Customers
            
            Revenues
            
            Percentage
              of revenues
            
            
            
            Accounts
              receivable, tradeCustomer
                A
            
            $
            733,504
            
            
            14
            %
            
            
            
            $
            264,494Customer
                B
            
            
            739,819
            
            
            14
            %
            
            
            
            
            94,153Customer
                C
            
            
            587,017
            
            
            11
            %
            
            
            
            
            267,523Customer
                D
            
            
            792,948
            
            
            15
            %
            
            
            
            
            100,602Total:
            
            $
            2,853,288
            
            
            54
            %
            
            Total:
            
            $
            726,772





For
      the
      three months ended September 30, 2007, customers who account for 10% or more
      of
      revenues are presented as follows:


Customers
            
            Revenues
            
            Percentage
              of revenues
            
            
            
            Accounts
              receivable, tradeCustomer
                B
            
            $
            571,417
            
            
            25
            %
            
            
            
            $
            192,301Customer
                C
            
            
            575,039
            
            
            25
            %
            
            
            
            
            168,478Customer
                D
            
            
            446,593
            
            
            19
            %
            
            
            
            
            205,341Customer
                E
            
            
            358,765
            
            
            16
            %
            
            
            
            
            198,736Total:
            
            $
            1,951,814
            
            
            85
            %
            
            Total:
            
            $
            764,856





F-19


**CHINA
      SHOE HOLDINGS, INC**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**





For
      the
      nine months ended September 30, 2007, customers who account for 10% or more
      of
      revenues are presented as follows:


Customers
            
            Revenues
            
            Percentage
              of revenues
            
            
            
            Accounts
              receivable, tradeCustomer
                B
            
            $
            988,377
            
            
            18
            %
            
            
            
            $
            192,301Customer
                C
            
            
            1,019,093
            
            
            19
            %
            
            
            
            
            168,478Customer
                D
            
            
            715,344
            
            
            13
            %
            
            
            
            
            205,341Customer
                E
            
            
            734,696
            
            
            14
            %
            
            
            
            
            198,736Customer
                F
            
            
            927,027
            
            
            17
            %
            
            
            
            
            195,885Total:
            
            $
            4,384,537
            
            
            81
            %
            
            Total:
            
            $
            960,741





(b)  Major
      vendors





For
      the
      three and nine months ended September 30, 2008 and 2007, there was no vendor
      who
      account for 10% or more of purchases.





(c)  Credit
      risk





Financial
      instruments that potentially subject the Company to significant concentrations
      of credit risk consist principally of cash and trade accounts receivable. The
      Company performs ongoing credit evaluations of its customers’ financial
      condition, but does not require collateral to support such
      receivables.





(d)  Interest
      rate risk





As
      the
      Company has no significant interest-bearing assets, the Company’s income and
      operating cash flows are substantially independent of changes in market interest
      rates.





The
      Company’s interest-rate risk arises from short-term borrowings. Borrowings
      issued at variable rates expose the Company to cash flow interest-rate risk.
      Borrowings issued at fixed rates expose the Company to fair value interest-rate
      risk. Company policy is to maintain approximately all of its borrowings in
      fixed
      rate instruments. As of September 30, 2008, all of borrowings were at fixed
      rates.





(e)  Exchange
      rate risk





The
      reporting currency of the Company is US$, to date the majority of the revenues
      and costs are denominated in RMB and a significant portion of the assets and
      liabilities are denominated in RMB. As a result, the Company is exposed to
      foreign exchange risk as its revenues and results of operations may be affected
      by fluctuations in the exchange rate between US$ and RMB. If the RMB depreciates
      against US$, the value of RMB revenues and assets as expressed in US$ financial
      statements will decline. The Company does not hold any derivative or other
      financial instruments that expose to substantial market risk.





F-20


**CHINA
      SHOE HOLDINGS, INC**


**NOTES
      TO** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE NINE MONTHS ENDED SEPTEMBER 30, 2008**


**(Currency
      expressed in United States Dollars (“US$”))**


**(** **Unaudited)**





**NOTE
      -** **18**  **OPERATING
      LEASE COMMITMENT**





The
      Company rented offices, factories and retail shops under several non-cancelable
      operating lease agreements. As of September 30, 2008, the future minimum rental
      payments required for the coming years are as follows:





Period
                ended September 30,2009
            
            
            74,5992010
            
            
            81,3552011
            
            
            46,494Thereafter
            
            
            100,079$
            302,527





For
      the
      nine months ended September 30, 2008 and 2007, rental expenses were $63,229
      and
      $38,991 respectively.





F-21





**ITEM 2.**
            **MANAGEMENT'S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS**




***Special
      Note Regarding Forward Looking Statements***




This
      Quarterly Report on Form 10-Q, including the following “Management's Discussion
      and Analysis of Financial Condition and Results of Operations,” contains
      forward-looking statements within the meaning of Section 27A of the Securities
      Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
      1934,
      as amended (the “Exchange Act”). Such statements include, among others, those
      concerning our expected financial performance and strategic and operational
      plans, as well as all assumptions, expectations, predictions, intentions or
      beliefs about future events. You are cautioned that any such forward-looking
      statements are not guarantees of future performance and that a number of risks
      and uncertainties could cause actual results of the Company to differ materially
      from those anticipated, expressed or implied in the forward-looking statements.
      The words “believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,”
“intend,” “aim,” “will” or similar expressions are intended to identify
      forward-looking statements. All statements other than statements of historical
      fact are statements that could be deemed forward-looking statements. Risks
      and
      uncertainties that could cause actual results to differ materially from those
      anticipated include risks related to new and existing products; any projections
      of sales, earnings, revenue, margins or other financial items; any statements
      of
      the plans, strategies and objectives of management for future operations; any
      statements regarding future economic conditions or performance; uncertainties
      related to conducting business in China; any statements of belief or intention;
      any of the factors mentioned in the “Risk Factors” section of our “Report of
      Unscheduled Material Events or Corporate Changes” on Form 8-K for the years
      ended December 31, 2006 and December 2005, and other risks mentioned in this
      Form 10-Q. The Company assumes no obligation and does not intend to update
      any
      forward-looking statements, except as required by law.




***Use
      of terms***





Except
      as
      otherwise indicated by the context, references in this Form 10-K to “CHSH,”
“we,” “us,” “our,” “our Company,” or “the Company” are to China Shoe Holdings,
      Inc., a Nevada corporation, and its consolidated subsidiaries. Unless the
      context otherwise requires, all references to (i)“WSTG” are to Wholly Success
      Technology Group Limited, a limited liability company incorporated in the
      British Virgin Islands; (ii)“SKYEDC” are to Shanghai Kanghong Yunheng Enterprise
      Development Company Limited., a limited liability company incorporated in the
      People's Republic of China; (iii)”SKSCL” are to Shanghai Kangjiesi Shoes Company
      Limited., a limited liability company incorporated in the People's Republic
      of
      China  (iv) “BVI” are to British Virgin Islands; (v) “PRC” and “China” are
      to the People's Republic of China; (vi) “U.S. dollar,” “$” and “US$” are to
      United States dollars; (vii) “RMB” are to Yuan of China; (viii) “Securities Act”
are to the Securities Act of 1933, as amended; and “Exchange Act” are to the
      Securities Exchange Act of 1934, as amended.








***Overview***




The
      Company faced a worsening operating environment during the third quarter of
      2008
      as the global financial crisis cut demand and a rising currency eroded profits.
      Since our products are mainly sold to the Japanese market, the weakening of
      theJapanese economy under the global financial crisis has led to the cut of
      major sales order from the Japanese customers. These factors are anticipated
      by
      management to continue into the foruth quarter of 2008.





Apart
      from the manufacturing business, starting from the second quarter of 2008,
      the
      Company commenced its retail business in Shanghai region through selling its
      own
      developed brands of “Kanggies” and “CCR”.





***Our
      Business***




We
      are an
      independent, single facility-based, private label designer, manufacturer and
      marketer of a broad line of woman's shoes in which the footwear are generally
      sold under its customers' brand names. We also manufactures shoe component
      such
      as soles for other shoe manufacturers.





We
      sold
      shoes and shoe components to approximately forty customers in Japan and China.
      Our factory is located in Jiading Township, a suburb of Shanghai in the People's
      Republic of China.





We
      also
      conduct retail sales of our own developed ladies shoes and leather products
      in
      the People’s Republic of China, mainly in the Shanghai region.





***Recent
      Development***




On
      July
      3, 2007, a closing was held pursuant to an Agreement and Plan of Reorganization,
      dated as of June 29, 2007, (the “Agreement”) by and among the Company, WSTG, a
      BVI Corporation, and WSTG's shareholders. Pursuant to the Agreement, each
      shareholder of WSTG exchanged all of his shares in WSTG for shares in The
      Company with an aggregate of 69,615,000 shares in the Company being issued
      in
      exchange for the shares in WSTG. In addition to the stock exchange transaction,
      CHSH agreed to issue an additional 15,185,000 restricted shares of common stock
      of the Company to China Venture Partners, Inc. for consulting services at a
      par
      value of $0.001 per share. The shares were issued in lieu of cash payment of
      $60,000 pursuant to a contract for consulting services dated June 1,
      2007.





WSTG
      is
      the owner of all the outstanding shares of SKYEDC, a limited liability company
      organized under the laws of the People's Republic of China (“PRC”) and a
      manufacturer of woman's shoes, casual shoes and shoe components.





Under
      the
      terms of the Agreement, all of the officers of the Company resigned, WSTG was
      permitted to appoint two directors, representing 50% of the Company's Board
      of
      Directors and WSTG and the Company agreed not to file a registration statement
      on Form SB-2 allowing for insiders' share sales for a period of one year or
      to
      file a registration statement on From S-8 for nine months. CVP provides general
      business consulting services, specializing in the needs of entities with
      interests in the PRC.




On
      January 30, 2008, the Company entered into a Regulation S Subscription Agreement
      (the “Agreement”) with Mr. Yu Guorui, a resident and national of the PRC (the
“Investor”). Pursuant to the Agreement, the Company sold 4,230,769 shares of
      common stock to the Investor for $550,000 at a market price of $0.13 per share.
      The Company intends to utilize the funds received primarily on expansion of
      its
      planned retail store operations in the PRC.





On
      February 21, 2008, the Company, through its subsidiary, SKYEDC, has established
      a company namely, Shanghai Kangjiesi Shoes Co. Ltd., to conduct the sales of
      shoes and leather products in the PRC. It was incorporated as a limited
      liability company under the laws of the PRC and its registered capital is
      amounted to $68,362 (equivalent to RMB 500,000).





On
      March
      17, 2008, the Company entered into an Equity Line Agreement (the “Agreement”)
      with Magellan Global Fund, L.P., a Delaware limited partnership (the
“Investor”), pursuant to which the Company agreed to sell and issue and the
      Investor agreed to purchase from the Company up to $2,000,000 of the Company’s
      common stock with a par value of $0.001 per share. Upon the execution of the
      Agreement, the Company shall issue to the Investor a restricted stock
      certificate of the Company’s common stock in an amount equal to $40,000 divided
      by the closing bid price on the closing date (571,429 shares). In addition,
      upon
      effectiveness of a registration statement pursuant to the Agreement, the Company
      will issue an additional $40,000 of common stock to the Investor priced at
      the
      closing bid price of the day the registration statement is declared effective
      by
      the United States Securities and Exchange Commission. The Company intends to
      use
      the funds from this offering for its execution of Company’s retail
      strategy.




On
      April
      25, 2008, the Company approved and adopted the 2008 Equity Incentive Plan (the
      “EIP”) for the purpose to provide additional incentive to employees, directors
      and consultants. The EIP permits the grant of incentive stock options,
      non-statutory stock options, restricted stock, restricted stock units, stock
      appreciation rights, performance units and performance shares.





On
      May 1,
      2008, the Company issued 14,643,372 shares of restricted common stock under
      the
      EIP with a fair market value of $0.033 per share. The fair market value was
      based on the last trade or closing ask price of the Company’s common stock on
      the over the counter bulletin board.








WSTG
      is
      the owner of all the outstanding shares of SHKH, a limited liability company
      organized under the laws of the People's Republic of China (“PRC”) and a
      manufacturer of woman's shoes, casual shoes and shoe components.





Under
      the
      terms of the Agreement, all of the officers of the Company resigned, WSTG was
      permitted to appoint two directors, representing 50% of the Company's Board
      of
      Directors and WSTG and the Company agreed not to file a registration statement
      on From SB-2 allowing for insiders' share sales for a period of one year or
      to
      file a registration statement on From S-8 for nine months. CVP provides general
      business consulting services, specializing in the needs of entities with
      interests in the PRC.





**Results
      of Operations**





(1)
      The
      following table summarizes the results of our operations during the three-months
      period ended September 30 2008 and 2007, and provides information regarding
      the
      dollar and percentage increase or (decrease) from the three-months period ended
      September 30, 2008 to the three months period ended September 30,
      2007.





All
      amount, other than percentages, in millions of U.S dollars




**3 Months Ended September 30,****Item**
            
            **2008**
            
            **2007**
            
            **Increase**
              **(Decrease)**
            
            **% Increase**
              **(% Decrease)**Operating
                Revenues
            
            $
            0.61
            
            $
            2.30
            
            $
            (1.69
            )
            $
            (73.5
            )%Cost
                of Revenues
            
            
            0.31
            
            
            1.72
            
            
            (1.41
            )
            
            (82.0
            )%Gross
                Profit
            
            
            0.30
            
            
            0.58
            
            
            (0.28
            )
            
            (48.3
            )%Operating
                Expenses-
                Depreciation
            
            
            0.01
            
            
            0.002
            
            
            0.008
            
            
            400.0
            %-
                Stock based compensation
            
            
            0.04
            
            
            -
            
            
            0.04
            
            
            N/A-
                Selling & marketing
            
            
            0.02
            
            
            -
            
            
            0.02
            
            
            N/A-
                Impairment charge on building
            
            
            0.11
            
            
            -
            
            
            0.11
            
            
            N/A-
                Provision for inventory loss
            
            
            2.39
            
            
            -
            
            
            2.39
            
            
            N/A-
                General & administrative
            
            
            0.26
            
            
            0.29
            
            
            (0.03
            )
            
            (10.3
            )%Other
                expenses
            
            
            (0.0019
            )
            
            (0.023
            )
            
            0.021
            
            
            91.3
            %Income
                Tax Expenses
            
            
            (0.032
            )
            
            -
            
            
            (0.032
            )
            
            N/ANet
                (Loss) Income
            
            
            (2.57
            )
            
            0.26
            
            
            (2.83
            )
            
            (1,088.5
            )%




***Three
      Months Ended September 30, 2008 Compared to Three Months Ended September 30,
      2007***





***Revenue:*** Starting
      from second quarter of 2008, our revenues are generated from manufacturing
      and
      retailing business. Revenue was $0.61 million for the three months ended
      September 30, 2008 as compared to $2.30 million for the three months ended
      September 30, 2007, representing a decreased by 73.5%. The dramatic decrease
      in
      revenue was mainly attributable to the loss of sales orders from a major
      Japanese customer.





***Cost
      of Revenue and Gross Profit:*** Cost of
      revenue and gross profit were respectively $0.31 million and $0.3 million for
      the three months ended September 30, 2008 as compared to $1.72 million and
      $0.58
      million for the three months ended September 30, 2007, representing a decrease
      by 82% and 48.3% respectively. The increased in gross profit was mainly due
      to
      the higher profit margin derived from the retail business when comparing with
      the corresponding period of 30 September 2007.




***Operating
      Expenses:*** Operating expenses was $2.83 million for the three months ended September 30,
      2008 as compared to $0.29 million for the three months ended September 30,
      2007,
      representing an increase by 875.9%. The substantially increased was mainly
      attributable to the provision for inventory losses in the current period of
      30
      September 2008.





***Income
      Tax Expenses:*** China
      Shoe Holdings, Inc. is subject to United States federal income tax rate. No
      provision for income taxes in the United States has been made as China Shoe
      Holdings, Inc. had no United States taxable income during the three months
      ended
      September 30, 2008.





Our
      wholly owned subsidiary Wholly Success Technology Group Limited (“WSTG”) was
      incorporated in the British Virgin Islands and, under the current laws of the
      BVI, is not subject to income taxes.





Starting
      from the first quarter of 2007, Shanghai Kanghong Yunheng Enterprise Development
      Company Limited (“SKYEDC”), a subsidiary of the Company, which operates in the
      PRC, is exempted from the PRC state and local enterprise income tax for the
      first two profitable financial years of operation and a 50% relief from the
      PRC
      state corporate income tax for the following three years.  Its
      ultimate applicable effective tax rate in 2008 and beyond will depend on many
      factors, including but not limited to whether certain of its legal entity will
      be subject to a transitional policy under the corporate income tax law, whether
      SKYEDC can continue to enjoy the unexpired tax holidays.








On
      March
      16, 2007, the National People's Congress of the PRC determined to adopt a new
      corporate income tax law in its fifth plenary session. The new corporate income
      tax law unifies the application scope, tax rate, tax deduction and preferential
      policy for both domestic and foreign-invested enterprises. The new corporate
      income tax law was effective on January 1, 2008. Under the new corporate tax
      law, SKYEDC is entitled to the tax rate reduction from 33% to 25% that may
      impact the carrying value of deferred tax assets as a result of new tax
      rate.  As
      the
      implementation detail has not yet been announced, we cannot be sure of the
      potential impact of such new corporate income tax law on our financial position
      and operating results.





Our
      subsidiary, Shanghai Kangjiesi Shoes Co., Ltd (“SKSCL”) which operates in the
      PRC, is conducting a retailing shoe business in the People’s Republic of China.
      SKSCL is subject to a corporate income tax rate of 25%.





Income
      taxes expense was $0.032 million for the three months ended September 30, 2008.
      The Company started to pay taxes during the three months ended September 30,
      2008 because of the commencement of the retail business from SKSCL during the
      three months ended June 30, 3008.





***Net
      (loss) income:*** Net loss
      was $2.57 million for the three months ended September 30, 2008 as compared
      to a
      net income of $0.26 million for the three months ended September 30, 2007,
      mainly attributable to the provision for inventory losses during the current
      period of 30 September, 2008.





(2)
      The
      following table summarizes the results of our operations during the nine-months
      period ended September 30 2008 and 2007, and provides information regarding
      the
      dollar and percentage increase or (decrease) from the nine-months period ended
      September 30, 2007 to the nine months period ended September 30,
      2008.




All
      amount, other than percentages, in millions of U.S dollars




**9 Months Ended September 30,****Item**
            
            **2008**
            
            **2007**
            
            **Increase**
              **(Decrease)**
            
            **% Increase**
              **(% Decrease)**Operating
                Revenues
            
            $
            5.27
            
            $
            5.43
            
            $
            (0.16
            )
            $
            (2.9
            )%Cost
                of Revenues
            
            
            3.53
            
            
            4.03
            
            
            (0.50
            )
            
            (12.4
            )%Gross
                Profit
            
            
            1.74
            
            
            1.40
            
            
            0.34
            
            
            24.3
            %Operating
                Expenses-
                Depreciation
            
            
            0.04
            
            
            0.01
            
            
            0.03
            
            
            300.0
            %-
                Stock based compensation
            
            
            0.06
            
            
            0.02
            
            
            0.04
            
            
            200.0
            %-
                Selling & marketing
            
            
            0.06
            
            
            -
            
            
            0.06
            
            
            N/A-
                Impairment charge on building
            
            
            0.11
            
            
            -
            
            
            0.11
            
            
            N/A-
                Provision for inventory loss
            
            
            2.39
            
            
            -
            
            
            2.39
            
            
            N/A-
                General & administrative
            
            
            0.68
            
            
            0.68
            
            
            -
            
            
            -Other
                Expenses
            
            
            (0.009
            )
            
            (0.04
            )
            
            0.031
            
            
            77.5
            %Income
                Tax Expenses
            
            
            (0.052
            )
            
            -
            
            
            (0.052
            )
            
            N/ANet
                (Loss) Income
            
            
            (1.64
            )
            
            0.65
            
            
            (2.29
            )
            
            (352.3
            )%




***Nine
      Months Ended September 30, 2008 Compared to Nine Months Ended September 30,
      2007***





***Revenue:*** Starting
      from second quarter of 2008, our revenues are generated from both manufacturing
      and retailing business, revenue was $5.27 million for the nine months ended
      September 30, 2008 as compared to $5.43 million for the nine months ended
      September 30, 2007, representing a decrease by 2.9%. The decrease in revenue
      was
      mainly attributable to the loss of sales from a major Japanese
      customer.





***Cost
      of Revenue and Gross Profit:*** Cost of
      revenue and gross profit were respectively $3.53 million and $1.74 million
      for
      the nine months ended September 30, 2008 as compared to $4.03 million and $1.40
      million for the nine months ended September 30, 2007, representing a decrease
      by
      12.4% and an increased by 24.3% respectively. The increased in gross profit
      was
      mainly due to the higher profit margin derived from the retail business when
      comparing with the corresponding period of 30 September 2007.





***Operating
      Expenses:*** Operating expenses was $3.34 million for the nine months ended September 30,
      2008 as compared to $0.71 million for the nine months ended September 30, 2007,
      representing an increase by 370.4%. The substantially increased was mainly
      attributable to the provision for inventory losses in the current period of
      30
      September 2008.








***Income
      Tax Expenses:*** China
      Shoe Holdings, Inc. is subject to United States federal income tax rate. No
      provision for income taxes in the United States has been made as China Shoe
      Holdings, Inc. had no United States taxable income during the nine months ended
      September 30, 2008.




Our
      wholly owned subsidiary Wholly Success Technology Group Limited (“WSTG”) was
      incorporated in the British Virgin Islands and, under the current laws of the
      BVI, is not subject to income taxes.




Starting
      from the first quarter of 2007, Shanghai Kanghong Yunheng Enterprise Development
      Company Limited (“SKYEDC”), a subsidiary of the Company, which operates in the
      PRC, is exempted from the PRC state and local enterprise income tax for the
      first two profitable financial years of operation and a 50% relief from the
      PRC
      state corporate income tax for the following three years. Its ultimate
      applicable effective tax rate in 2008 and beyond will depend on many factors,
      including but not limited to whether certain of its legal entity will be subject
      to a transitional policy under the corporate income tax law, whether SKYEDC
      can
      continue to enjoy the unexpired tax holidays.





On
      March
      16, 2007, the National People's Congress of the PRC determined to adopt a new
      corporate income tax law in its fifth plenary session. The new corporate income
      tax law unifies the application scope, tax rate, tax deduction and preferential
      policy for both domestic and foreign-invested enterprises. The new corporate
      income tax law will be effective on January 1, 2008. Under the new corporate
      tax
      law, SKYEDC is entitled to the tax rate reduction from 33% to 25% that may
      impact the carrying value of deferred tax assets as a result of new tax
      rate.  As
      the
      implementation detail has not yet been announced, we cannot be sure of the
      potential impact of such new corporate income tax law on our financial position
      and operating results.





Our
      subsidiary, Shanghai Kangjiesi Shoes Co., Ltd (“SKSCL”) which operates in the
      PRC, is conducting shoes retailing business in the People’s Republic of China.
      SKSCL is subject to a corporate income tax rate of 25%.





Income
      taxes expense was $0.052 million for the nine months ended September 30, 2008.
      The Company started to pay taxes during the nine months ended September 30,
      2008
      because of the commencement of the retail business from SKSCL during the nine
      months ended September 30, 3008.





***Net
      income:*** Net loss
      was $1.64 million for the nine months ended September 30, 2008 as compared
      to
      net income of $0.65 million for the nine months ended September 30, 2007,
      representing mainly attributable to the provision for inventory losses during
      the current period of 30 September, 2008.





**Liquidity
      and Capital Resources**





**Cash
      Flows**


All
      amounts in millions of U.S. dollars





Nine Months Ended September 30,2008
            
            2007Net
                cash (used in) provided by operating activities
            
            $
            (0.69
            )
            $
            0.24Net
                cash used in investing activities
            
            
            (0.01
            )
            
            -Net
                cash provided by financing activities
            
            
            0.42
            
            
            0.25Foreign
                currency translation adjustments
            
            
            0.04
            
            
            0.02Net
                (decrease) increase in cash and cash equivalents
            
            $
            (0.24
            )
            $
            0.51





***Operating
      Activities:***





Net
      cash
      used in operating activities was $0.69 million for the nine months ended
      September 30, 2008, as compared with net cash provided by operating activities
      of $0.24 million for the corresponding period in 2007. The change was mainly
      due
      to the increased in inventories, accounts receivable, and the decreased in
      accounts payable.





***Investing
      Activities:***





Net
      cash
      used in investing activities for the nine months ended September 30, 2008 was
      $0.01 million. The increase was attributable to the acquisition of fixed
      assets.




***Financing
      Activities:***





Net
      cash
      provided by financing activities in the nine months ended September 30, 2008
      totaled $0.42 million as compared to $0.25 million in the corresponding period
      of 2007. The increase of cash provided by financing activities was mainly
      attributable to the proceeds from newly issued share capital of $0.55
      million.








***Short
      Term Bank Borrowings:***





The
      Company utilizes short term bank borrowings to provide for its liquidity needs
      as the Company is typically paid for its product adequate to allow the Company
      to operate at present levels and to sustain moderate growth.




Management
      believes that the Company's reputation for quality production will result in
      more large orders that will be difficult to fill without significant plant
      expansion and to explore the feasibility of entering the retail shoe market
      in
      China. However, the Company does not have any commitments for additional
      financing and no assurance is given that any additional financing will be
      available or that, if available, it will be on terms that are favorable to
      our
      shareholders.









PART
      II:
      OTHER INFORMATION




Item
      1.
      Legal Proceedings




None.




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




Previously
      reported on Form 8-K filed February 4, 2008 and Form 8-K A-1 filed May 1,
      2008.




Item
      3.
      Defaults Upon Senior Securities




None.




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




No
      items
      during the period covered by this report.




Item
      5.
      Other Information




None.




F-29




Item
      6.
      Exhibits and Reports on Form 8-K





a)




EXHIBITS




31.1




Certification
      of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act
      of 2002





31.2




Certification
      of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act
      of 2002





32




Certifications
      of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
      Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
      of
      2002




b)
      REPORTS ON FORM 8-K




The
      Company filed a Form 8-K, dated June 6, 2007. The Company filed additional
      reports on Form 8-K after the close of the period covered by this
      report.







SIGNATURES




In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the
      Registrant caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized.




China
      Shoe Holdings, Inc.


(Registrant)




Date:
      November 19, 2008





By:  /s/
      Gu Xianzhong




Gu
      Xianzhong


President
      and CEO




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





NAME
            
            TITLE
            
            DATE/s/
                Gu Xianzhong
            
            President
                and CEO
            
            November
                19, 2008Gu
                Xianzhong





/s/
                Angus Cheung Ming
            
            Chief
                Financial Officer
            
            November
                19, 2008Angus
                Cheung Ming(Principal
                Financial and Accounting Officer)