Form
      10Q





China
      Shoe Holdings, Inc. - CHSH





Filed:
      (period: March 31, 2008)





Quarterly
      report filed by small businesses











Table
                of Contents





PART
                  I.ITEM
                  1.
              FINANCIAL
                  STATEMENTSITEM
                  2.
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONSITEM
                  3.
              CONTROLS
                    AND PRODCECURESPART
                  II:OTHER
                  INFORMATIONItem
                  1.
              Legal
                  ProceedingsItem
                  2.
              Unregistered
                  Sales of Equity Securities and Use of ProceedsItem
                  3.
              Defaults
                  Upon Senior SecuritiesItem
                  4.
              Submission
                  of Matters to a Vote of Security HoldersItem
                  5.
              Other
                  InformationItem
                  6.
              Exhibits
                  and Reports on Form 8-KSIGNATURESEX-31.1
                  (Certifications required under Section 302 of the Sarbanes-Oxley
                  Act of
                  2002)EX-31.2
                  (Certifications required under Section 302 of the Sarbanes-Oxley
                  Act of
                  2002)EX-32
                  (Certifications required under Section 906 of the Sarbanes-Oxley
                  Act of
                  2002)











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 March 31, 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 104,230,770 shares of Common Stock outstanding as of May 15,
      2008.





**PART
      I.**


**ITEM
      1. FINANCIAL STATEMENTS**




**CHINA
                  SHOE HOLDINGS, INC**
                
                **(Unaudited)**
                **Condensed
                  Consolidated Financial Statements**
                **For
                  The Three Months Ended March 31,
                  2008**














**CHINA
        SHOE HOLDINGS, INC**
 
 **INDEX
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 
 **Page**Condensed
                  ConsolidatedBalanceSheets as of March 31, 2008 and December 31, 2007
              F-2Condensed
                  ConsolidatedStatements
                  of Operations And Comprehensive Income for the three months ended
                  March
                  31, 2008 and 2007
              F-3Condensed
                  ConsolidatedStatements
                  of Cash Flowsfor the three months ended March 31, 2008 and 2007
              F-4Condensed
                  ConsolidatedStatementof
                  Stockholders’ Equity for the three months ended March 31,
                  2008
              F-5Notes
                  to Condensed Consolidated Financial Statements
              F-6
                  to F-18
 
 
 
  F-1
 **CHINA
        SHOE HOLDINGS,** **INC**
 **CONDENSED** **CONSOLIDATED
        BALANCE SHEETS**
 **AS
        OF MARCH 31, 2008 AND DECEMBER 31, 2007**
 **(Currency
        expressed in United States Dollars (“US$”)** **,
        except for number of shares)**
  
 March
                  31, 2008
              
              December
                  31, 2007(unaudited)
              
              (audited)**ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              1,103,627
              
              $
              706,823Accounts
                  receivable, trade
              
              
              1,158,014
              
              
              1,071,037Advances
                  to employees
              
              
              42,722
              
              
              41,017Inventories
              
              
              1,368,751
              
              
              529,574Other
                  receivables and prepayments
              
              
              408,408
              
              
              519,210Total
                  current assets
              
              
              4,081,522
              
              
              2,867,661Non-current
                  assets:Property,
                  plant and equipment, net
              
              
              1,736,973
              
              
              1,717,719**TOTAL
                  ASSETS**
              
              $
              5,818,495
              
              $
              4,585,380**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**Current
                  liabilities:Short-term
                  bank borrowings
              
              $
              178,007
              
              $
              170,903Accounts
                  payable, trade
              
              
              324,712
              
              
              500,491Amount
                  due to directors
              
              
              42,497
              
              
              76,049Other
                  payables and accrued liabilities
              
              
              563,004
              
              
              386,208Total
                  current liabilities
              
              
              1,108,220
              
              
              1,133,651Stockholders’
                  equity:Preferred
                  stock, $0.001 par value; 10,000,000 shares authorized; no shares
                  issued
                  and outstanding as of March 31, 2008 and December 31, 2007
              
              
              -
              
              
              -Common
                  stock, $0.001 par value; 300,000,000 shares authorized; 104,230,770
                  and
                  100,000,001 shares issued and outstanding as of March 31, 2008
                  and
                  December 31, 2007
              
              
              104,231
              
              
              100,000Additional
                  paid-in capital
              
              
              2,429,133
              
              
              1,883,364Accumulated
                  other comprehensive income
              
              
              402,092
              
              
              225,226Retained
                  earnings
              
              
              1,774,819
              
              
              1,243,1394,710,275
              
              
              3,451,729**TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY**
              
              $
              5,818,495
              
              $
              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**
 **FOR
          THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**
 **(Currency
          expressed in United States Dollars (“US$”), except for number of
          shares)**
 **(Unaudited)**
 Three
                  months ended March 31,2008
              
              2007**OPERATING
                  REVENUES**
              
              $
              2,357,580
              
              $
              1,173,975**COST
                  OF REVE**NUES (exclusive of depreciation)
              
              
              1,493,195
              
              
              802,940**GROSS
                  PROFIT**
              
              
              864,385
              
              
              371,035**OPERATING
                  EXPENSES**:Depreciation
              
              
              52,078
              
              
              7,167General
                  and administrative
              
              
              276,915
              
              
              170,050Total
                  operating expenses
              
              
              328,993
              
              
              177,217**INCOME
                  FROM OPERATIONS**
              
              
              535,392
              
              
              193,818**OTHER
                  INCOME (EXPENSE):**Interest
                  income
              
              
              398
              
              
              177Interest
                  expense
              
              
              (4,110
              )
              
              (4,913
              )Total
                  other expense
              
              
              (3,712
              )
              
              (4,736
              )**INCOME
                  BEFORE INCOME TAXES**
              
              
              531,680
              
              
              189,082Income
                  tax expenses
              
              
              -
              
              
              -**NET
                  INCOME**
              
              $
              531,680
              
              $
              189,082Other
                  comprehensive income:-
                  Foreign currency translation gain
              
              
              176,866
              
              
              17,409**COMPREHENSIVE
                  INCOME**
              
              $
              708,546
              
              $
              206,491Net
                  income per share- Basic and diluted
              
              $
              0.01
              
              $
              0.19Weighted
                  average number of shares outstanding during the year - Basic and
                  diluted
              
              
              102,867,522
              
              
              994,500
 
 
 
 See
        accompanying notes to condensed consolidated financial statements.
 F-3
  **CHINA
          SHOE HOLDINGS, INC.**
 **CONDENSED
          CONSOLIDATED** **STATEMENTS
          OF CASH FLOWS**
 **FOR
          THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(Unaudited)**
  
 Three
                  months ended March 31,2008
              
              2007**Cash
                  flows from operating activities:**Net
                  income
              
              $
              531,680
              
              
              189,082Adjustments
                  to reconcile net income to net cash
                used
                  in operating activities:Depreciation
              
              
              52,078
              
              
              48,165Change
                  in operating assets and liabilities:Accounts
                  receivable, trade
              
              
              (41,548
              )
              
              (302,351
              )Advances
                  to employees
              
              
              -
              
              
              107,725Inventories
              
              
              (799,686
              )
              
              (452,450
              )Other
                  receivables and prepayments
              
              
              129,552
              
              
              (197,128
              )Value-added
                  tax receivable
              
              
              -
              
              
              66,948Accounts
                  payable, trade
              
              
              (192,379
              )
              
              206,357Income
                  tax payable
              
              
              -
              
              
              (20,119
              )Amount
                  due to directors
              
              
              (35,905
              )
              
              -Other
                  payables and accrued liabilities
              
              
              160,456
              
              
              120,112Net
                  cash used in operating activities
              
              
              (195,752
              )
              
              (233,659
              )**Cash
                  flows from investing activities:**Purchase
                  of property, plant and equipment
              
              
              (1,045
              )
              
              -Net
                  cash used in investing activities
              
              
              (1,045
              )
              
              -Cash
                  flows from financing activities:Proceeds
                  from issuance of common stock
              
              
              550,000
              
              
              -Proceeds
                  from short-term bank borrowings
              
              
              -
              
              
              295,692Payment
                  to restricted cash
              
              
              -
              
              
              (61,886
              )Net
                  cash provided by financing activities
              
              
              550,000
              
              
              233,806Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              43,601
              
              
              17,409**NET
                  CHANGE IN CASH AND CASH EQUIVALENTS**
              
              
              396,804
              
              
              17,556**CASH
                  AND CASH EQUIVALENTS, BEGINNING OF PERIOD**
              
              
              706,823
              
              
              333,508**CASH
                  AND CASH EQUIVALENTS, END OF PERIOD**
              
              $
              1,103,627
              
              
              351,064**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:**Cash
                  paid for income taxes
              
              $
              -
              
              $
              20,119Cash
                  paid for interest expenses
              
              $
              4,110
              
              $
              4,913
 
 See
        accompanying notes to condensed consolidated financial statements
 F-4
  **CHINA
          SHOE HOLDINGS,** **INC**
 **CONDENSED
          CONSOLIDATED** **STATEMENT
          OF STOCKHOLDERS’ EQUITY**
 **FOR
          THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
  
 Common
                    StockNo.
                    of shares
                
                Amount
                
                Additional
                    paid-in capital
                
                Accumulated
                    other comprehensive income
                
                Retained
                    earnings
                
                Total
                    stockholders’ equityBalance
                    as ofJanuary
                    1, 2008
                
                
                100,000,001
                
                $
                100,000
                
                $
                1,883,364
                
                $
                225,226
                
                $
                1,243,139
                
                $
                3,451,729Shares
                    issuedunder
                    Regulation S Subscription Agreement on January 30, 2008
                
                
                4,230,769
                
                
                4,231
                
                
                545,769
                
                
                -
                
                
                -
                
                
                550,000Netincome
                    for the period
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                531,680
                
                
                531,680Foreign
                    currencytranslation adjustment
                
                
                -
                
                
                -
                
                
                -
                
                
                176,866
                
                
                -
                
                
                176,866Balance
                    as ofMarch
                    31, 2008
                
                
                104,230,770
                
                $
                104,231
                
                $
                2,429,133
                
                $
                402,092
                
                $
                1,774,819
                
                $
                4,710,275
 
  
 See
        accompanying notes to condensed consolidated financial statements
 F-5
 **CHINA
          SHOE HOLDINGS,** **INC**
 **NOTES
          TO** **CONDENSED
          CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 NOTE –1BASIS
        OF
        PRESENTATION
 
 The
        accompanying unaudited condensed consolidated financial statements have been
        prepared in accordance with both generally accepted accounting principles
        for
        interim financial information, and the instructions to Form 10-Q and Rule
        10-01
        of Regulation S-X. Accordingly, they do not include all of the information
        and
        footnotes required by generally accepted accounting principles for complete
        financial statements. The accompanying unaudited condensed consolidated
        financial statements reflect all adjustments (consisting of normal recurring
        accruals) that are, in the opinion of management, considered necessary for
        a
        fair presentation of the results for the interim periods presented. Interim
        results are not necessarily indicative of results for a full year.
 
 The
        condensed consolidated financial statements and related disclosures have
        been
        prepared with the presumption that users of the interim financial information
        have read or have access to our annual audited condensed consolidated financial
        statements for the preceding fiscal year. Accordingly, these condensed
        consolidated financial statements should be read in conjunction with the
        consolidated financial statements and the related notes thereto contained
        in the
        Annual Report on Form 10-K for the year ended December 31, 2007.
 
 
 NOTE–2ORGANIZATION
        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.
        In
        order to maintain a competitive advantage in the shoes manufacturing industry,
        the Company has developed the following proprietary technologies: (i) PU
        imitational grainy sole, (ii) TPR modified materials and (iii) Viscose water.
        The Company has registered and obtained “Utility Model” patent and “Invention”
patent respectively for these innovations from the State Intellectual Property
        Office of the PRC in 2006.
 
 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 THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 
 NOTE–3SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES
 
 •  Basis
        of
        presentation
 
 These
        accompanying condensed consolidated financial statements have been prepared
        in
        accordance with generally accepted accounting principles in the United States
        of
        America.
 
 •  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.
 
 •  Basis
        of
        consolidation
 
 The
        condensed consolidated financial statements include the financial statements
        of
        CHSH and its subsidiaries, WSTG, Shanghai Kanghong and Shanghai
        Kangjiesi.
 
 All
        significant inter-company balances and transactions within the Company have
        been
        eliminated upon consolidation.
 
 •  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.
 
 •  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 March 31, 2008, the
        Company recorded no allowance for doubtful accounts.
 
 • Inventories
 F-7
 **CHINA
          SHOE HOLDINGS,** **INC**
 **NOTES
          TO** **CONDENSED
          CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 
 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. The Company provides inventory allowances based
        on
        excess and obsolete inventories determined principally by customer demand.
        As of
        March 31, 2008, the Company did not record an allowance for obsolete
        inventories, nor have there been any write-offs.
 
 •  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.
 
 •  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. There
        has been no impairment as of March 31, 2008.
 
 •  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 of 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
 F-8
 **CHINA
        SHOE HOLDINGS,** **INC**
 **NOTES
        TO** **CONDENSED
        CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
        expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 
 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 three
        months ended March 31, 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.
 
 • 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.
 
 •  Income
        taxes
 
 The
        Company accounts for income taxes in interim periods as required by Accounting
        Principles Board Opinion No. 28, “Interim Financial Reporting” and as
        interpreted by FASB Interpretation No. 18, “Accounting for Income Taxes in
        Interim Periods.” The Company has determined an estimated annual effective tax
        rate. The rate will be revised, if necessary, as of the end of each successive
        interim period during the Company’s fiscal year to the Company’s best current
        estimate. The estimated annual effective tax rate is applied to the year-to-date
        ordinary income at the end of the interim period.
 
 The
        Company also 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.
 F-9
 **CHINA
          SHOE HOLDINGS,** **INC**
 **NOTES
          TO** **CONDENSED
          CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 Effective
        January 1, 2007, the Company also adopts the provisions of the Financial
        Accounting Standards Interpretation No. 48, “Accounting for Uncertainty in
        Income Taxes” (“FIN 48”). FIN 48 prescribes a recognition threshold and
        measurement process for recording in the financial statements uncertain tax
        positions taken or expected to be taken in a tax return. FIN 48 also provides
        guidance on de-recognition, classification, interest and penalties, accounting
        in interim periods, disclosures and transitions. In connection with the adoption
        of FIN No. 48, the Company has analyzed the filing positions in all of the
        jurisdictions where the Company is required to file income tax returns, as
        well
        as all open tax years in these jurisdictions. There was no impact on the
        condensed consolidated financial statements. The Company did not have any
        unrecognized tax benefits and there was no effect on the financial condition
        or
        results of operations for the period ended March 31, 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 foreign tax
        authority.
 
 In
        accordance with FIN48, the Company adopted the policy of recognizing interest
        and penalties, if any, related to unrecognized tax positions as income tax
        expense.
 
 •  Net
        income per share
 
 The
        Company calculates net income per share in accordance with SFAS No. 128,
“Earnings per Share.” Basic income per share is computed by dividing the net
        income by the weighted-average number of common shares outstanding during
        the
        period. Diluted income per share is computed similar to basic income 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.
 
 •  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.
 
 •  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
        functional and reporting currency of the Company is the United States dollars
        (“US$”). The accompanying condensed consolidated financial statements have been
        expressed in US$. In addition, the Company’s operating subsidiary in the PRC,
        TCH maintains its books and records in its local currency, the Renminbi Yuan
        (“RMB”), which is functional currency as being the primary currency of the
        economic environment in which its operations are conducted.
 
 The
        reporting currency of the Company is the United States dollar ("US dollars").
        The Company's subsidiaries in the PRC, SKYEDC and SKSCL maintain their books
        and
        records in its local currency, the Renminbi (“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.
 
 Translation
        of amounts from RMB into United States dollars (“US$”) has been made at the
        following exchange rates for the respective period:
  2008
              
              2007Months
                  end RMB:US$ exchange rate
              
              
              7.022
              
              
              7.702Average
                  monthly RMB:US$ exchange rate
              
              
              7.176
              
              
              7.757
 
 F-10
 
 •  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.
 
 •  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.
 
 •  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, receivable from a third party, prepayments and deposits,
        short-term bank loan, other payables and accrued liabilities and income tax
        payable.
 
 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 year ends.
 
 • 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
        February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
        Financial Assets and Financial Liabilities" ("SFAS No. 159"). SFAS No. 159
        permits entities to choose to measure, on an item-by-item basis, specified
        financial instruments and certain other items at fair value. Unrealized gains
        and losses on items for which the fair value option has been elected are
        required to be reported in earnings at each reporting date. SFAS No. 159
        is
        effective for fiscal years beginning after November 15, 2007, the provisions
        of
        which are required to be applied prospectively. The Company believes that
        SFAS
        159 should not have a material impact on the consolidated financial position
        or
        results of 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 THREE MONTHS ENDED MARCH 31, 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.
 
 
 NOTE–4ACCOUNTS
        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 three months ended
        March
        31, 2008 and 2007.
 
 
 NOTE–5INVENTORIES
 March
                    31, 2008
                
                December
                    31, 2007(audited)Raw
                    materials
                
                $
                709,627
                
                $
                224,795Work
                    in process
                
                
                473,084
                
                
                124,214Finished
                    goods
                
                
                186,040
                
                
                180,565$
                1,368,751
                
                $
                529,574
    F-12
 **CHINA
          SHOE HOLDINGS,** **INC**
 **NOTES
          TO** **CONDENSED
          CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 For
        the
        three months ended March 31, 2008 and 2007, the Company did not record an
        allowance for obsolete inventories, nor have there been any write-offs.
 
 
 NOTE–6OTHER
        RECEIVABLES AND PREPAYMENTS
 
 Other
        receivables and prepayments consisted of the following:
 March
                    31, 2008
                
                December
                    31, 2007(audited)Prepayments
                
                $
                331,224
                
                $
                457,973Other
                    receivables
                
                
                72,127
                
                
                61,237$
                408,408
                
                $
                519,210
 
 The
        prepayments represented the deposits to suppliers for materials consumptions.
        The balances are subsequently settled upon the delivery of
        materials.
 
 Other
        receivables represented temporary advances to various independent third parties
        and the Company is expected to recover the receivables within the next twelve
        months.
 
 
 NOTE–7PROPERTY,
        PLANT AND EQUIPMENT, NET
 
 Property,
        plant and equipment, net, consisted of the following:
 
 March
                    31, 2008
                
                December
                    31, 2007(audited)Buildings
                
                $
                430,538
                
                $
                403,046Plant
                    and machinery
                
                
                2,001,463
                
                
                1,822,779Office
                    equipment
                
                
                44,900
                
                
                38,954Motor
                    vehicles
                
                
                32,697
                
                
                29,452Foreign
                    translation difference
                
                
                104,275
                
                
                214,2992,613,873
                
                
                2,508,530Less:
                    accumulated
                    depreciation
                
                
                (842,889
                )
                
                (726,573
                )Less:
                    foreign translation difference
                
                
                (34,011
                )
                
                (64,238
                )Property,
                    plant and equipment, net
                
                $
                1,736,973
                
                $
                1,717,719
 
 Depreciation
        expense for the three months ended March 31, 2008 and 2007 were $52,078 and
        $48,165, respectively.
 F-13
 **CHINA
          SHOE HOLDINGS,** **INC**
 **NOTES
          TO** **CONDENSED
          CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 
 NOTE–8SHORT-TERM
        BANK BORROWINGS
 
 As
        of
        March 31, 2008, the short-term bank loans consist of three individual bank
        loans
        with aggregate amount of RMB 1,250,000 (2007: RMB1,250,000) payable to a
        financial institution, guaranteed by an independent third party, with interest
        rate ranged from 7.29% to 8.21% (2007: 7.38%) per annum payable quarterly,
        with
        principals due between August 20 to October 20, 2008.
 
 As
        of
        March 31, 2008 and December 31, 2007, the short-term bank borrowings was
        $178,007 and $170,903.
 
 
 NOTE–9OTHER
        PAYABLES AND ACCRUED LIABILIITES
 
 Other
        payables and accrued liabilities consisted of the followings:
 March
                    31, 2008
                
                December
                    31, 2007(audited)Salaries
                    payable
                
                $
                88,600
                
                $
                77,718Welfare
                    payable
                
                
                -
                
                
                1,629Advances
                    from customers
                
                
                -
                
                
                13,395Accrued
                    expenses
                
                
                146,324
                
                
                146,230Advances
                    from third parties
                
                
                113,924
                
                
                109,378Export
                    declaration payable
                
                
                71,203
                
                
                -VAT
                    payable
                
                
                96,979
                
                
                9,355Other
                    payables
                
                
                45,974
                
                
                28,503$
                563,004
                
                $
                386,208
 
 
 NOTE–10
        INCOME
        TAXES
 
 The
        Company is registered in the United States of America and has operations
        in
        three tax jurisdictions: the United States of America, British Virgin Islands
        (“BVI”) and the PRC. For the three months ended March 31, 2008, the operation in
        the United States of America and BVI did not incur any operating income or
        losses for income tax purposes. The Company generated substantially its net
        income from the operation of its subsidiary in the PRC and subject to the
        PRC
        tax jurisdiction. The Company did not record any income tax provision for
        the
        three months ended March 31, 2007 and 2008, respectively.
 
 The
        components of income before income taxes separating U.S., BVI and PRC tax
        jurisdictions are as follows:
 Three
                    months ended March 31,2008
                
                2007Tax
                    jurisdictions from:Losssubject
                    to U.S.
                
                $
                -
                
                $
                -LosssubjectBVI
                
                
                -
                
                
                -Income
                    subject tothe PRC
                
                
                531,680
                
                
                189,082Income
                    before income taxes
                
                $
                531,680
                
                $
                189,082
  F-14
 **CHINA
        SHOE HOLDINGS,** **INC**
 **NOTES
        TO** **CONDENSED
        CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
        expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 
 *United
        States of America*
 
 CHSH
        is
        registered in the State of Nevada and is subject to the tax laws of United
        States of America.
 
 As
        of
        March 31, 2008, the operation in the United States of America did not incur
        net
        operating losses available for federal tax purposes, which are available
        to
        offset future taxable income. The net operating loss carry forwards begin
        to
        expire in 2028, if unutilized.
  *British
        Virgin Islands*
 
 Under
        the
        current BVI law, the Company is not subject to tax on income.
 
 *The
        PRC*
 
 All
        the
        Company’s PRC subsidiaries are subject to the Corporate Income Tax governed by
        the Income Tax Law of the PRC. Effective from January 1, 2008, the Corporate
        Income Tax Law of the PRC (the “New CIT Law”) is followed. Under the New CIT
        Law, SKYEDC, as a foreign investment enterprise continues to enjoy the unexpired
        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.
        SKSCL is a domestic company which is entitled to the tax rate reduction from
        33%
        to 25%.
 
 The
        reconciliation of income tax rate to the effective income tax rate based
        on
        income before income taxes stated in the statements of operations for the
        three
        months ended March 31, 2008 and 2007 is as follows:
 Three
                    months ended March 31,2008
                
                2007Income
                    beforeincome
                    taxes
                
                $
                531,680
                
                $
                189,082Statutory
                    income tax rate
                
                
                25
                %
                
                33
                %132,920
                
                
                62,397Tax
                    effect of expenses not deductible for tax purposes:-
                    Effect from tax holiday
                
                
                (132,920
                )
                
                (62,397
                )Income
                    tax expenses
                
                $
                -
                
                $
                -
  
 The
        Company’s effective income tax rates for the three months ended March 31, 2008
        and 2007 were 0% and 0%.
 
 The
        following table sets forth the significant components of the aggregate deferred
        tax assets of the Company as of March 31, 2008 and December 31,
        2007:
 March
                    31, 2008
                
                December
                    31, 2007(audited)Deferred
                    tax assets:-
                    Net operating loss carried forward
                
                $
                25,932
                
                $
                25,932-
                    Accrued expenses
                
                
                -
                
                
                24,802Less:
                    valuation allowance
                
                
                (25,932
                )
                
                (50,734
                )Deferred
                    tax assets
                
                $
                -
                
                $
                -
  F-15
 **CHINA
          SHOE HOLDINGS,** **INC**
 **NOTES
          TO** **CONDENSED
          CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 NOTE–11
        AMOUNT
        DUE TO DIRECTORS
 
 The
        balances due to directors, Mr. Gu Xianzhong and Mr. Gu Changhong, represented
        unsecured advances which are interest-free and repayable in next twelve
        months.
 
 
 NOTE–12
        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 on the over the counter bulletin board during the
        month preceeding the subscription agreement. The Company intends to utilize
        the
        funds received primarily on expansion of its retail store operations in
        China.
 
 
 NOTE–13CONCENTRATION
        AND RISK
 
 (a)  Major
        customers and vendors
 
 For
        the
        three months ended March 31, 2008 and 2007, 100% of the Company’s assets were
        located in the PRC and 85% of the Company’s revenues were derived from customers
        located in Japan for the three months ended March 31, 2008.
 
 For
        the
        three months ended March 31, 2008, customers who account for 10% or more
        of
        revenues are presented as follows:
 
 Customers
              
              
              Revenues
              
              Percentage
                of
                  revenues
              
              
              Accounts
                receivable,
                  tradeCustomer
                  A
              
              
              $
              419,884
              
              18%
              
              
              $
              51,912Customer
                  B
              
              
              
              399,125
              
              17%
              
              
              
              49,272Customer
                  C
              
              
              
              356,388
              
              15%
              
              
              
              128,217Customer
                  D
              
              
              
              334,645
              
              14%
              
              
              
              115,067Customer
                  E
              
              
              
              286,520
              
              12%
              
              
              
              90,160Customer
                  F
              
              
              
              265,123
              
              11%
              
              
              
              169,953Total:
              
              $
              2,061,685
              
              87%
              Total:
              
              $
              604,581
 
 For
        the
        three months ended March 31, 2007, customers who account for 10% or more
        of
        revenues are presented as follows:
 F-16
 **CHINA
          SHOE HOLDINGS,** **INC**
 **NOTES
          TO** **CONDENSED
          CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
          expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
 Customers
              
              
              Revenues
              
              Percentage
                of
                  revenues
              
              
              Accounts
                receivable,
                  tradeCustomer
                  A
              
              
              $
              241,296
              
              21%
              
              
              $
              34,292Customer
                  B
              
              
              
              131,907
              
              11%
              
              
              
              78,745Customer
                  F
              
              
              
              143,342
              
              12%
              
              
              
              41,320Customer
                  G
              
              
              
              117,758
              
              10%
              
              
              
              100,788Total:
              
              $
              634,303
              
              54%
              Total:
              
              $
              255,145
 
 For
        the
        three months ended March 31, 2008 and 2007, there are no vendors who account
        for
        10% or more of purchases.
 
 (b)  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.
 
 (c)  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 March 31, 2008, all of borrowings were at fixed
        rates.
 
 (d)  Exchange
        rate risk
 
 The
        reporting currency of the Company is the US dollar, 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 Dollar and RMB.
        If
        the RMB depreciates against the US Dollar, the value of the RMB revenues
        and
        assets as expressed in US Dollar financial statements will decline. The Company
        does not hold any derivative or other financial instruments that expose to
        substantial market risk.
 
 
 NOTE–15OPERATING
        LEASE COMMITMENT
 
 The
        Company rented offices and factories under non-cancelable operating lease
        agreements. As of March 31, 2008, the future minimum rental payments required
        for the coming years are as follows:
 
 Period
                  ended March 31,2008
              
              $
              189,0462009
              
              
              244,0212010
              
              
              115,3392011
              
              
              36,069Thereafter
              
              
              67,698$
              652,173
  For
        the three months ended March 31, 2008 and 2007,
        rental expenses were $15,932 and $8,528 respectively.
 
 F-17
 **CHINA
        SHOE HOLDINGS,** **INC**
 **NOTES
        TO** **CONDENSED
        CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE MONTHS ENDED MARCH 31, 2008**
 **(Currency
        expressed in United States Dollars (“US$”))**
 **(** **Unaudited)**
     
 
 NOTE–16SUBSEQUENT
        EVENT
 
 On
        April
        25, 2008, the Board of Directors of the Company approved the Employee Incentive
        Plan. The details of the plan will be attached as exhibit to the S-8
        Registration Statement which will be filed shortly.


F-18




**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-QSB, 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-KSB 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.




F-19


***Overview***




The
      Company continued to implement its growth strategy for the three months ended
      March 31, 2008 through slightly higher marketing efforts to be placed on the
      ladies footwear for the Japanese market.





The
      Company continued to strengthen its balance sheet in 2007 and for the three
      months ended of March 31, 2008. Total assets and stockholders' equity have
      both
      increased.





***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.





***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 Board of Directors of the Company approved the Employee Incentive
      Plan. The details of the plan will be attached as exhibit to the S-8
      Registration Statement which will be filed shortly.







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**





The
      following table summarizes the results of our operations during the three months
      ended March 31, 2008 and 2007, and provides information regarding the dollar
      and
      percentage increase or (decrease) from the three months ended March 31, 2007
      to
      the three months ended March 31, 2007.





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





**3
                  Months Ended March 31,****Increase**
              
              **%
                  Increase****Item**
              
              **2008**
              
              **2007**
              
              **(Decrease)**
              
              **(%
                  Decrease)**Operating
                  Revenues
              
              $
              2.36
              
              $
              1.17
              
              $
              1.18
              
              $
              100.7
              %Cost
                  of Revenues
              
              
              1.49
              
              
              0.80
              
              
              0.69
              
              
              86.0
              %Gross
                  Profit
              
              
              0.87
              
              
              0.37
              
              
              0.50
              
              
              135.7
              %Operating
                  Expenses-
                  Depreciation
              
              
              0.05
              
              
              0.01
              
              
              0.04
              
              
              630.3
              %-
                  General & administrative
              
              
              0.28
              
              
              0.17
              
              
              0.11
              
              
              62.7
              %Other
                  Income (Expenses)
              
              
              (0.004
              )
              
              (0.005
              )
              
              0.03
              
              
              150.0
              %Net
                  Income
              
              
              0.54
              
              
              0.19
              
              
              0.38
              
              
              184.2
              %





***Three
      Months Ended March 31, 2008 Compared to Three Months Ended March 31,
      2007***





***Revenue:*** Revenue
      was $2.36 million for the three months ended March 31, 2008 as compared to
      $1.17
      million for the three months ended March 31, 2007, representing an increase
      by
      100.7%. The increase in revenue was mainly contributed to the increased in
      the
      proportion of sales into the Japanese market.





***Cost
      of Revenue and Gross Profit:*** Cost
      of
      revenue and gross profit were respectively $1.49 million and $0.87 million
      for
      the three months ended March 31, 2008 as compared to $0.80 million and $0.37
      million for the three months ended March 31, 2007, representing an increase
      by
      86.0% and 135.7% respectively. The substantial growth in gross profit was
      attributable to the increased in the proportion of sales into the Japanese
      market that are generally at higher margins than sales within the
      PRC.





***Operating
      Expenses:*** Operating
      expenses was $0.33 million for the three months ended March 31, 2008 as compared
      to $0.18 million for the three months ended March 31, 2007, representing an
      increase by 83.3%. The increased was mainly attributable to the hiring of
      additional staff, increased in entertainment and more vehicle expenses for
      serving the Japanese customers and professional expenses related to the reverse
      take-over activities on the over-the counter market.





***Income
      Tax Expenses:*** ** No
      income
      tax was incurred during the three months ended March 31, 2007. Starting from
      the
      first quarter of 2007, 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. Accordingly, it was
      not subject to tax in 2007.





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. According to the new
      corporate income tax law, the applicable income tax law rate for our operating
      subsidiaries may be subject to change. 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.





***Net
      income:*** Net
      income was $0.54 million for the three months ended March 31, 2008 as compared
      to $0.19 million for the three months ended March 31, 2007, representing an
      increase by 184.2%, the increase was mainly attributable to the increase in
      the
      greater proportion of sales from the Japanese market.








**Liquidity
      and Capital Resources**




**Cash
      Flows**


All
      amounts in millions of U.S. dollars





Three
                months ended2008
            
            2007Net
                cash (used in) operating activities
            
            $
            (0.19
            )
            $
            (0.23
            )Net
                cash (used in) investing activities
            
            
            (0.001
            )
            
            -Net
                cash provided by financing activities
            
            
            0.55
            
            
            0.23Net
                change in cash and cash equivalents
            
            $
            0.36
            
            $
            -




***Operating
      Activities:***





Net
      cash
      used in operating activities was $0.19 million for the three months ended March
      31, 2008, which is decrease of $0.04 million from $0.23 million as compared
      with
      the corresponding period in 2007. The decrease was mainly due to the increased
      in net income, increased in other payables and accrued liabilities and decreased
      in accounts payable.





***Investing
      Activities:***





Net
      cash
      used in investing activities for the three months ended March 31, 2008 was
      $0.001 million. The increase was attributable to the acquisition of fixed
      assets.





***Financing
      Activities:***





Net
      cash
      provided by financing activities in the three months ended March 31, 2008
      totaled $0.55 million as compared to $0.23 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
      USD550,000.





***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.




Short-term
      bank borrowings were as follows:





March
                31, 2008
            
            December
                31, 2007(unaudited)
            
            (audited)Short-term
                bank loans
            
            $
            178,007
            
            $
            170,903





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.








**ITEM
      3. CONTROLS AND PROCEDURES**




Members
      of our management, including our Chief Financial Officer and Principal
      Accounting and Financial Officer, have evaluated the effectiveness of our
      disclosure controls and procedures, as defined by paragraph (e) of Exchange
      Act
      Rules 13a-15or 15d-15, as of March 31, 2008, the end of the period covered
      by
      this report. Based upon that evaluation, Mr. Gu Xianzhong concluded that our
      disclosure controls and procedures are effective.




**INTERNAL
      CONTROL OVER FINANCIAL REPORTING**




There
      were no changes in our internal control over financial reporting or in other
      factors identified in connection with the evaluation required by paragraph
      (d)
      of Exchange Act Rules 13a-15 or 15d-15 that occurred during the quarter ended
      March 31, 2008 that have materially affected, or are reasonably likely to
      materially affect, our internal control over financial reporting.





**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.








**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:
                May 15, 2008
            By:
            /s/
                GuXianzhongGu
                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
            May
                15, 2008Gu
                Xianzhong/s/Angus
                Cheung Ming
            
            Chief
                Financial Officer
            May
                15. 2008Angus
                Cheung Ming
            
            (Principal
                Financial and Accounting Officer)