SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended March 31, 2012

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission File Number: 0-34713

MATCHES, INC.
(Exact name of registrant as specified in its charter)

Wyoming

68-0664590

(State or other jurisdiction

(IRS Employer

of incorporation or

Identification No.)

organization)

c/o Suzhou Jinkai Textile Co.,Ltd., Yongle Development Zone,

Huangjing Town, Taicang City, Jiangsu Province, China, 215427
(Address of principal executive offices) (Zip Code)

(86)-512-53818777

(Registrant's telephone number)

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

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

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

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

The number of shares outstanding of the issuer's one class of Common Stock as of May 14, 2012 was 78,525,000.

TABLE OF CONTENTS


		Page
PART I
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

PART II
Item 1.	Legal Pr oceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26

MATCHES, INC.AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



		March 31, 2012		December 31, 2011
ASSETS		(Unaudited)
Current assets
Cash and cash equivalents	$	3,836,010	$	2,699,255
Restricted cash		6,895,580		5,124,559
Notes receivable		2,848,208		4,333,150
Trade accounts receivable		7,567,586		8,897,224
Amount due from a related party		3,696,442		4,854,553
Advance to suppliers		6,355,220		712,253
Inventories		5,469,474		2,973,942
Prepaid expenses		37,934		66,792

Total current assets		36,706,454		29,661,728


Deferred tax asset		208,861		-
Long term investment		355,748		353,512
Property plant and equipment, net		18,265,356		18,628,283
Land use rights and land development, net		4,178,501		4,175,170

Total Assets	$	59,714,920	$	52,818,693

LIABILITIES AND EQUITY

Current liabilities
Short-term bank loans	$	17,589,767	$	15,908,055
Long-term loan-current portion		175,502		174,399
Notes payable		18,106,622		15,002,772
Notes payable-a related party		1,802,457		-
Trade accounts payable		848,156		767,977
Advances from customers		917,096		360,279
Income tax payable		-		24,193
Other payables		1,039,679		713,058
Amount due to shareholders		417,019		414,840
Capital lease payable		125,263		199,508

Total current liabilities		41,021,561		33,565,081


Long-term loan		246,652		303,235
Total Liabilities		41,268,213		33,868,316

Commitments and Contingencies		-		-

Equity
Shareholders’ equity
Common stock ($.001 par value; 80,000,000 shares authorized; 78,525,000 shares issued and outstanding as of March 31, 2012 and December 31, 2011, respectively) (see note below)		78,525		78,525
Common stock to be authorized and issued ($.001 par value; 100,948,684 shares to be authorized and issued as of March 31, 2012 and December 31, 2011) (see note below)		100,949		100,949
Additional paid-in capital		10,700,856		10,700,856
Statutory reserves		1,606,654		1,606,654
Retained earnings		3,302,366		3,926,783
Accumulated other comprehensive income		2,657,357		2,536,610
Total Matches, Inc. shareholders’ equity
Total Matches, Inc. shareholders’ equity		18,446,707		18,950,377

Non-controlling interests		-		-
Total Equity		18,446,707		18,950,377
TOTAL LIABILITIES AND EQUITY	$	59,714,920	$	52,818,693

(Note: In December 2010, the Company agreed to issue 170,948,684 shares of common stock in a transaction of share exchange, due to a shortage of currently authorized shares, 70,000,000 shares were issued at the closing of this transaction. Prior to share exchange, the Company has 8,525,000 shares of common stock issued and outstanding, see Note 1 and Note 20 for details)

See notes to the consolidated financial statements.

MATCHES, INC.AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


	Three months ended March 31,
		2012				2011
		(Unaudited)				(Unaudited)
Sales	$	11,275,226			$	18,811,810
Cost of sales		10,913,725				16,735,803

Gross margin		361,501				2,076,007

Operating expenses
General and administrative expenses		787,435				670,993
Selling expenses		145,018				220,202
Total operating expenses		932,453				891,195

Income/(loss) from operations		(570,952		)		1,184,812

Other income/(expense)
Government grants		240,503				154,794
Interest income		8,364				68,584
Interest expense		(526,626		)		(284,223		)
Other income		15,281				3,979
Other expense, net		(262,478		)		(56,866		)

Income/(loss) before income tax expense		(833,430		)		1,127,946
Income tax expense/(benefit)		(209,013		)		314,828

Net income/(loss) before allocation to non-controlling interests		(624,417		)		813,118
Less: Net Gain/(loss) attributable to non-controlling interests		-				-
Net income/(loss) attributable to Matches, Inc.		(624,417		)		813,118
Other comprehensive income

Net income/(loss) before allocation to non-controlling interests		(624,417		)		813,118
Foreign currency translation adjustment		120,747				98,202
Comprehensive Income/(loss)		(503,670		)		911,320
Less: Comprehensive income/(loss) attributable to non-controlling interests		-				3,362
Comprehensive Income/(loss) Attributable to Matches, Inc.		(503,670		)		907,958
Weighted-average number of common shares outstanding Basic and diluted-actual			78,525,000				78,525,000

Basic and diluted-pro forma (see note below)		179,473,684				179,473,684

Earnings per share

Basic and diluted-actual

(0.01)

0.01

Basic and diluted-pro forma (see note below)

(0.00)

0.00

(Note: pro forma earnings per share reflect the effect from 100,948,684 shares of common stock to be issued and authorized as of March 31, 2012 and December 31, 2011, respectively; see Note 1 and Note 23 for details)

See notes to the consolidated financial statements.

MATCHES, INC.AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


		Three months ended March 31,
		2012		2011
Cash flows from operating activities:		(Unaudited)		(Unaudited)
Net income/(loss) before allocation to non-controlling interests	$	(624,417	) $	813,118
Adjustments to reconcile net income before allocation to non-controlling interests to net cash provided by operation activities:
Depreciation		566,445		495,174
Amortization of land use rights and land development		23,091		22,220
Changes in operating assets and liabilities
Restricted cash		(1,739,876	)	(2,183,392	)
Notes receivable		1,513,447		415,530
Trade accounts receivable, net		1,386,916		2,010,861
Advance to suppliers		(5,642,566	)	(1,601,027	)
Inventories		(2,478,527	)	4,473,942
Prepaid expenses		29,302		(7,428	)
Amount due from a related party		1,189,678		-
Deferred tax asset		(209,013	)	-
Notes payable		3,011,157		9,105,858
Notes payable- a related party		1,803,769		-
Trade accounts payable		75,377		852,017
Advances from customers		554,941		572,892
Income tax payable		(24,364	)	(114,740	)
Other payables		322,346		(451,584	)
Amount due to shareholders		-		(3,745	)
Net cash provided by/(used in) operating activities		(242,294	)	5,451,812

Cash flows from investing activities:
Purchases of property plant and equipment		(85,355	)	(1,808,848	)

Net cash used in investing activities		(85,355	)	(1,808,848	)

Cash flows from financing activities:
Repayment of capital lease obligations		(75,563	)	(78,165	)
Proceeds from bank loans		6,645,464		4,138,465
Repayment of bank loans		(5,121,754	)	(8,231,402	)

Net cash provided by/(used in) financing activities		1,448,147		(4,171,102	)
Effect of foreign currency fluctuation on cash and cash equivalents		16,257		39,085

Net increase/(decrease) in cash and cash equivalents		1,136,755		(489,053	)

Cash and cash equivalents-beginning of period		2,699,255		6,403,120

Cash and cash equivalents-end of period	$	3,836,010	$	5,914,067

Supplementary cash flow information:


Cash paid for interest expense	$	526,626	$	284,223
Cash paid for income tax	$	24,364	$	429,569

See notes to the consolidated financial statements

MATCHES, INC.AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FININACIAL STATEMENTS

Note 1 - Organization and Description of Business

Matches, Inc. (the “Company”) was incorporated pursuant to the laws of the State of Wyoming on November 28, 2007. On December 17, 2010, the Company entered into Agreement and Plan of Reorganization (the “Exchange Agreement”), pursuant to which we agreed to acquire Golden Stone Rising Limited, a British Virgin Islands company (“Golden”). Golden, through its subsidiaries and controlled operations in the People’s Republic of China (the “PRC” or “China”), is in the business of producing polyester chemical fibers.

The transaction closed on December 22, 2010 the (“Closing Date”). On the Closing Date, pursuant to the terms of the Exchange Agreement, the Company acquired Golden by agreeing to issue 170,948,684 shares of common stock of the Company, constituting 95.25% of the Company’s shares, to Golden’s owners after giving effect to the issuance of such shares. Due to a shortage of currently authorized shares, 70,000,000 shares were issued at the closing of the acquisition and the remaining shares will be issued at such time as the Company has completed an amendment to its articles to increase its authorized shares or the Company completes a contemplated reverse stock split, which will not affect the total authorized shares. The stockholder entitled to the additional shares owns a majority of the outstanding common shares, which entitles her to approve the amendment or the reverse stock split. Golden’s owners waived the right to receive the remaining shares as the condition of closing the transaction, subject to being able to receive them at some future time. As of March 31, 2012, 78,525,000 shares are issued and outstanding and 100,948,684 shares are pending to be authorized and issued. These shares have been recorded in the balance sheets as common stock to be authorized and issued.

Taicang Kehui Consulting Service Limited (“Kehui”) was incorporated under the laws of PRC as the wholly owned subsidiary of Triple Success Holding LLC (“Triple Success “) on October 22, 2010. Triple Success was incorporated in United States of America as a limited liability company on May 25, 2010, and is a wholly owned subsidiary of Golden.

Suzhou Jinkai Textile Co., Ltd (“Jinkai”) was organized under the laws of the PRC on April 17, 2001 with registered capital of $60,401 (RMB 500,000). By the end of 2007, the owners made further injection to increase the registered capital to $7,140,958(RMB56,000,000), which was 90% owned by Mr. Chen Jinle, the Companies’ chairman, and 10% owned by Mr. Chen Chenxu, Mr. Chen Jinle’s nephew. In 2008, the owners injected further capital of $1,459,769 (RMB10,000,000) in Jinkai.

Suzhou Hangyu Textile Co., Ltd (“Hangyu”) was organized under the laws of PRC on January 11, 2006 with registered capital of $2,279,343 (RMB18,000,000), which was 90% owned by Mr. Chen Jinle, and 10% owned by Mr. Chen Chenxu. On January 28, 2010, Mr. Chen Jinle and Mr. Chen Chenxu, the two shareholders of Hangyu, each signed Share Transfer Agreements (the “Agreements”) with Jinkai. Pursuant to the Agreements, Mr. Chen Jinle and Mr. Chen Chenxu transferred their total equity interest of Hangyu, representing 90% and 10%, respectively, to Jinkai as as capital injection. Jinkai increased its registered capital from $8,600,727 (RMB66,000,000) to $11,465,122 (RMB88,000,000), Therefore, Hangyu became the wholly owned subsidiary of Jinkai as of January 28, 2010.

Taicang Jinkai Differentiated Fibers Research and Development Co., Ltd (“Taicang Jinkai”) was established on April 25, 2008 with registered capital of $146,088 (RMB1,000,000); it is a wholly owned subsidiary of Jinkai.

On February 2, 2010, Suzhou Zhongxian Supply Chain Management Co., Ltd (“Zhongxian”), a new subsidiary of Jinkai, was organized under the laws of the PRC with registered capital of $1,170,104 (RMB 8,000,000). On the date of inception, Jinkai owned 20% and Mr. Chen Jinle owns 30% of Zhongxian’s equity interest. In April 2010, Mr. Chen Jinle and another individual owner of Zhongxian transferred 10% and 25%, respectively, equity interest in Zhongxian to Jinkai for cash. Jinkai has owned a 55% equity interest of Zhongxian since then. In October 2011, Jinkai and other individual owners injected further capital of $1,098,849 (RMB7,000,000) in Zhongxian pro rata. On December 26, 2011, Jinkai transferred 40% equity interest to Mr. Chen Jinle. Consequently, Jinkai’s equity interest in Zhongxian decreased from 55% to 15%, as a result, at December 31, 2011 Zhongxian was no longer consolidated and the Company’s investment in Zhongxian is accounted for under the cost method. This transaction is accounted for as transaction among entities under common control and no gain or loss was recognized.

Jiankai together with its two subsidiaries are engaged in the manufacturing and sales of terylene partially oriented filament and terylene draw textured yarn. On November 20, 2010, Kehui entered into the following contractual arrangements with Suzhou Jinkai and its shareholders, providing Kehui the ability to control Jinkai, including its financial interest as described below. Thus, Jinkai became a contractually controlled subsidiary of Kehui (the “Reorganization”).

Entrusted Management Agreement-Pursuant to the Entrusted Management Agreement between Kehui, Jinkai and the Jinkai shareholders, Jinkai and its shareholders agreed to entrust the business operations of Jinkai and its management to Kehui until Kehui acquires all of the assets or equity of Jinkai (as more fully described under “Exclusive Option Agreement” below). Under the Entrusted Management Agreement, Kehui manages Jinkai’s operations and assets, and controls all of Jinkai’s cash flow and assets through entrusted or designated bank accounts. In turn, it is entitled to any of Jinkai’s net earnings as a management fee, and is obligated to pay all Jinkai’s debts to the extent Jinkai is not able to pay such debts. The Entrusted Management Agreement will remain in effect until the acquisition of all assets or equity of Jinkai by Kehui is completed.

Shareholders’ Voting Proxy Agreement-Under the Shareholders’ Voting Proxy Agreement between Kehui and the Jinkai shareholders, the Jinkai shareholders irrevocably and exclusively appointed the board of directors of Kehui as their proxy to vote on all matters that require Jinkai shareholder approval. The Shareholders’ Voting Proxy Agreement shall not be terminated prior to the completion of acquisition of all assets or equity of Jinkai by Kehui.

Exclusive Option Agreement-Under the Exclusive Option Agreement between Kehui, Jinkai and the Jinkai shareholders, the Jinkai shareholders granted Kehui an irrevocable exclusive purchase option to purchase all or part of the shares or assets of Jinkai. The option is exercisable at any time but only to the extent that such purchase does not violate any PRC law then in effect. The exercise price shall be determined by relevant agreements entered into by and between Kehui and Jinkai shareholders based on the circumstances of the exercise of option, and such exercise price shall be refunded to Kehui or Jinkai.

Shares Pledge Agreement-Under the Shares Pledge Agreement among Kehui, Suzhou Jinkai and the Jinkai shareholders, the Jinkai shareholders pledged all of their equity interests in Jinkai, including the proceeds thereof, to guarantee all of Kehui’s rights and benefits under the Entrusted Management Agreement, the Exclusive Option Agreement and the Shareholders’ Voting Proxy Agreement. Prior to termination of the Shares Pledge Agreement, the pledged equity interests cannot be transferred without Kehui’s prior consent.

Call Option Agreements .Chen Jinle and other several senior management and other parties (each of them, the “Purchaser”) have entered into call option agreements, dated as of November 30, 2010, with our major shareholder, Hung Tsui Mei, pursuant to which they are entitled to purchase up to 100% of the issued and outstanding shares of Hung Tsui Mei at a price of $0.0001 per share for a period of five years upon satisfaction of certain conditions. These conditions are (1) if the Purchaser and Jinkai enter into a binding employment agreement for a term of not less than five years, the Purchaser will be entitled to purchase up to 40% of the total shares granted to the Purchaser; (2) if Suzhou Jinkai achieves not less than after tax net income of US$ 400,000 as determined under United States Generally Accepted Accounting Principles consistently applied (“US GAAP”) for the fiscal year ended December 31, 2010, the Purchaser will be entitle to purchase up to 40% of the total shares granted to the Purchaser; and (3) if Jinkai achieves not less than after tax net income of US$ 100,000 as determined under US GAAP for the period from January 1, 2011 to March 31, 2011. The shares covered under such call option agreements amount to 88% of all issued and outstanding shares as of this time, among which Chen Jinle will be entitled to purchase 35% of all issued and outstanding shares of Matches, Inc.

As a result of these arrangements, Kehui maintains the ability to approve decision made by Jinkai and is entitled to substantially all of the economic benefits of Jinkai. Therefore, Kehui is deemed to be the indirect sole interest holder of Jinkai and consolidates Jinkai from the date of the agreements in accordance with ASC 810-10, “Consolidation.” Jinkai’s controlling shareholder also substantially owned more than 50% of Golden at November 20, 2010. Golden and Jinkai were considered under common control at the date of Reorganization. Therefore the Reorganization was accounted for as a transaction between entities under common control in a manner similar to pooling of interests.

Details of the Company’s subsidiaries as of March31, 2012 were as follows:


		Date of	Beneficial
	Place of	incorporation or	ownership
Company name	Incorporation	Establishment	interest

Matches, Inc.	U.S.	November 28,2007	100%
Golden Stone Rising Limited(“Golden”)	BVI	June 22, 2010	100%
Triple Success Holding LLC (“Triple Success “)	U.S.	May 25, 2010	100%
Taicang Kehui Consulting Service Limited (“Kehui”)	PRC	October 22, 2010	100%
Suzhou Jinkai Textile Co., Ltd (the “Jinkai”)	PRC	April 17, 2001	100%
Suzhou Hangyu Textile Co., Ltd (the “Hangyu”)	PRC	January 11, 2006	100%
Taicang Jinkai Differentiated Fibers Research and Development Co., Ltd (the “Taicang Jinkai”)	PRC	April 25, 2008	100%

Note 2 - Summary of Significant Accounting Policies

Changes of reporting entity and basis of presentation

As a result of the Share Exchange on December 22, 2010, the former Golden shareholders acquired a majority of the common stock of the Company. The transaction was accounted for as a reverse merger whereby Golden was considered to be the accounting acquirer as its shareholders retained control of the Company after the Share Exchange, although the Company is the legal parent company. The share exchange was treated as a recapitalization of the Company. As such, Golden (and its historical financial statements) is the continuing entity for financial reporting purposes. Pursuant to the terms of the Share Exchange, the Company was delivered with no assets and no liabilities at time of closing. The financial statements have been prepared as if Golden had always been the reporting company and then on the share exchange date, had reorganized its capital stock.

The accompanying consolidated financial statements have been presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

In addition, these consolidated financial statements of the Company have been prepared on a going-concern basis which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future.

At March 31, 2012, the Company has a positive cash balance of $3,836,010 and negative working capital of $4,315,107. From inception through March 31, 2012 the Company has accumulated retained earnings of $3,302,366 and total equity of $18,446,707.

Company plans to cash generated from operations and proceeds from new bank loans to pay off all outstanding short-term bank loans for 2012. Upon maturity, the Company’s majority shareholder intends to provide sufficient working capital to allow the Company to repay the loan and fulfill its other payment obligations.

The Company believes that its cash and cash equivalents balance at March 31, 2012, estimated cash inflows from operations for 2012, and the additional proceeds committed from its majority shareholder will be sufficient to meet the Company’s liquidity requirements for 2012. However, in the event of unforeseen circumstances, or unfavorable market or economic developments, the adequate capital is not available to us as required, or is not available on favorable terms; our business, financial condition and results of operations may be adversely affected.

Principles of consolidation

The accompanying consolidated balance sheets as of March 31, 2012 and December 31, 2011 and the related consolidated statements of income and comprehensive income and cash flows for the three months period ended March 31, 2012 and 2011 include those of the Company and its subsidiaries. All transactions and balances between the Company and its direct or indirect owned subsidiaries have been eliminated upon consolidation.

Non-controlling interest represents the ownership interests in the subsidiary that are held by owners other than the parent. In December 2007, the Financial Account Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 160 (“SFAS 160”), “Non-controlling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“ASC Topic 810-10”). ASC 810-10 requires that the non-controlling interest is reported in the consolidated statement of financial position within equity, separately from the parent’s equity and that net income or loss and comprehensive income or loss are attributed to the parent and the non-controlling interest. If losses attributable to the parent and the non-controlling interest in a subsidiary exceed their interests in the subsidiary’s equity, the excess, and any further losses attributable to the parent and the non-controlling interest, is attributed to those interests. ASC 810-10 was effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company adopted this standard on January 1, 2010.

Interim Financial Statements

The accompanying unaudited consolidated financial statements have been prepared in accordance with US GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and disclosures that are normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted pursuant to these rules and regulations. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011 (the "2011 Form 10-K"), previously filed with the Securities and Exchange Commission.

In the opinion of management, all adjustments (consisting solely of normal recurring accruals) considered necessary for a fair presentation of the Company's results for the interim periods have been included. The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. Subsequent events were evaluated through the issuance date of the consolidated financial statements.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include allowance for doubtful accounts, the useful lives of fixed assets, amortization of land use right and the assessment of impairment of long-lived assets. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.

Accounts receivable

Accounts receivable mainly represent amounts earned and are collectible from customers. Accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make the required payments and uses the specific identification method to record such allowances. Management of the Company considers the following factors when determining the collectability of accounts receivable: a customer's credit-worthiness, past collection history, and changes in a customer's payment terms. Allowance for doubtful accounts is made based on any specifically identified accounts receivable that may become uncollectible.

Revenue recognition

Revenue from product sales is recognized when title has been transferred, which is generally at the time of customer’s receipt of product, the risks and rewards of ownership have been transferred to the customer, the price is fixed and determinable, and the collection of the related receivable is probable. The Company reports revenue net of value-added taxes if applicable.

Impairment of long-lived assets

In accordance with Impairment or Disposal of Long-Lived Assets Subsections of FASB ASC Subtopic 360-10, Property, Plant, and Equipment - Overall, long-lived assets, such as property, plant and equipment, and purchased intangible asset subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. No impairment of long-lived assets was recognized as of March 31, 2012 and December 31, 2011.

Recently issued accounting pronouncements

There are no new accounting pronouncements issued during the period that have a material impact on the consolidated financial statements upon adoption.

NOTE 3 – Restricted cash

The Company is required to make a restricted security deposit between 30% and 100% of the face amount of the notes accepted by the bank for the Company until the notes are settled. Cash restricted for this purpose amounted to $6,895,580 and $5,124,559, as of March 31, 2012 and December 31, 2011, respectively. (See Note 11)

NOTE 4 – Notes receivable

Notes receivable of $2,848,208 as of March 31, 2012 and $4,333,150 as of December 31, 2011 represents bank acceptance notes the Company received from customers for sales of products. The notes have maturity durations of 6 months, and are accepted by banks.

NOTE 5 – Trade accounts receivable

Accounts receivable at March 31, 2012 and December 31, 2011 consisted of the following:


		March 31, 2012		December 31, 2011
		(Unaudited)
Trade accounts receivable	$	7,567,586	$	8,897,224

No allowance for doubtful accounts was recorded as of March 31, 2012 and December 31, 2011 as management believes no accounts are uncollectible as of March 31, 2012 and December 31, 2011.

NOTE 6 – Advance to suppliers

In order to secure inventory supplies of raw materials, the Company made advance payments to certain suppliers. As of March 31, 2012 and December 31, 2011, the advance payments to suppliers amounted to $ 6,355,220 and $712,253, respectively.

NOTE 7 –Inventory

Inventories as of March 31, 2012 and December 31, 2011consisted of the following:


		March 31, 2012		December 31, 2011
		(Unaudited)
Raw materials	$	1,336,384	$	1,521,757
Work in progress		750,438		441,869
Finished goods		3,382,652		1,010,316

	$	5,469,474	$	2,973,942

No provision for inventory obsolescence was recorded as of March 31, 2012 and December 31, 2011.

NOTE 8 –Long term investment

Zhongxian was treated as a subsidiary of Jinkai, which owned 55% equity interest in Zhongxian through December 26, 2011. On December 26, 2011, Jinkai transferred 40% equity interest in Zhongxian to Mr. Chen Jinle. Consequently, Jinkai’s equity interest in Zhongxian decreased from 55% to 15%. Since then, Jinkai’s investment in Zhongxian is recorded as a cost method investment. This transaction is accounted for a transfer of assets among entities under common control and no gain or loss was recognized. The management regularly evaluates the impairment of the cost method investment based on performance and the financial position of the investee as well as other evidence of market value. Such evaluation includes, but not limited to, reviewing the investee’s cash position, recent financings, projected and historical financial performance, cash flow forecasts and financing needs.

NOTE 9 –Property plant and equipment

Property, plant and equipment as of March 31, 2012 and December 31, 2011 consisted of the following:


		March 31, 2012		December 31, 2011
		(Unaudited)
Buildings and plants	$	7,847,180	$	7,796,251
Machinery and equipment		17,824,325		17,660,081
Office equipment and furniture		558,753		541,132
Motor vehicles		562,247		558,714
		26,792,505		26,556,178
Less: Accumulated depreciation		(8,544,067)		(7,927,895)
		18,248,438		18,628,283
Construction in progress		16,918		-
	$	18,265,356	$	18,628,283

The depreciation expenses were $566,445 and $495,174 for the three months ended March 31, 2012 and 2011, respectively. The collateralized net book value of the equipment for bank loans was $2,258,286 and $2,357,572 at March 31, 2012 and December 31, 2011. The collateralized net book value of the buildings for these bank loans was $4,558,438 and $4,281,810 at March 31, 2012 and December 31, 2011. (See Note 11)

NOTE 10 –Land use rights and land development, net

Land use rights, net as of March 31, 2012 and December 31, 2011consisted of the following:


		March 31, 2012		December 31, 2011
		(Unaudited)
Land use right	$	1,601,186	$	1,591,123
Land development		2,932,894		2,914,462
		4,534,080		4,505,585
Less: Accumulated amortization		(355,579)		(330,415)

	$	4,178,501	$	4,175,170

Amortization expenses were $23,091 and $22,220 for the three months ended March 31, 2012 and 2011, respectively. The collateralized net book value of the lands for these bank loans was $4,058,278 and $4,054,971 at March 31, 2012 and December 31, 2011. (See Note 11)

NOTE 11 –Short-term bank loan

Short-term bank loans as of as of March 31, 2012 and December 31, 2011 consisted of the following:



		March 31, 2012		December 31, 2011
		(Unaudited)
Loan from China Construction Bank, with an annual interest rate of 6.39%, collateralized by land and building, matured on January 11, 2012		-	1,414,049
Loan from Jiangsu Rural Commercial Bank, with an annual interest rate of 9.47%, collateralized by equipment, maturing on April 24, 2012		-	1,414,049
Loan from Jiangsu Rural Commercial Bank, with an annual interest rate of 9.15%, collateralized by equipment, matured on February 14, 2012		-	314,233
Loan from Jiangsu Rural Commercial Bank, with an annual interest rate of 9.15%, collateralized by equipment, matured on February 14, 2012		-	1,256,933
Loan from Jiangsu Rural Commercial Bank, with an annual interest rate of 9.15%, collateralized by equipment, matured on February 28, 2012		-	314,233
Loan from China Construction Bank, with an annual interest rate of 6.31%, collateralized by land and building maturing on June 26, 2012		1,422,992	1,414,049
Loan from China Construction Bank, with an annual interest rate of 6.31%, guaranteed by Danuo foundry Co., Ltd maturing on June 9, 2012		1,581,103	1,571,166
Loan from China Construction Bank, with an annual interest rate of 6.56%, guaranteed by XiangTang Group Ltd., ,maturing on August 1, 2012		1,502,048	1,492,608
Loan from China Construction Bank, with an annual interest rate of 6.56%, guaranteed by Danuo foundry Co., Ltd and collateralized by equipment, maturing on August 28, 2012		766,835	762,015
Loan from China Construction Bank, with an annual interest rate of 6.56%, guaranteed by Gaozhan Guaranty Co., Ltd., maturing on September 15, 2012		1,565,292
					1,555,454

Loan from China Construction Bank, with an annual interest rate of 6.56%, guaranteed by Danuo foundry Co., Ltd maturing on November 7, 2012		1,185,827	1,178,374
Loan from Jiangsu Rural Commercial Bank, with an annual interest rate of 9.15%, collateralized by equipment, maturing on June 27, 2012		-	314,233
Loan from Shanghai Pudong Development Bank Taicang Branch, with an annual interest rate of 7.54%, guaranteed by Danuo foundry Co., Ltd, maturing on December 15, 2012		1,976,378	1,963,957
Loan from China Merchants Bank Taicang Branch, with an annual interest rate of 8.86%, guaranteed by Suzhou Jinkai Textile Co., Ltd, maturing on September 30, 2012		948,662	942,702
Loan from China Construction Bank, with an annual interest rate of 6.56%, collateralized by land and building, maturing on January 10, 2013		1,422,992	-
Loan from Jiangsu Rural Commercial Bank, with an annual interest rate of 9.15%, collateralized by equipment, maturing on August 13, 2012		632,441	-
Loan from Jiangsu Rural Commercial Bank, with an annual interest rate of 9.15%, collateralized by equipment, maturing on July 30, 2012		316,221	-
Loan from Jiangsu Rural Commercial Bank, with an annual interest rate of 9.15%, collateralized by equipment, maturing on August 14, 2012		632,441	-
Loan from Jiangsu Rural Commercial Bank, with an annual interest rate of 9.15%, collateralized by equipment, maturing on August 15, 2012		316,221	-
Loan from Jiangsu Rural Commercial Bank, with an annual interest rate of 9.15%, collateralized by equipment, maturing on September 6, 2012		1,422,992	-
Loan from Jiangsu Rural Commercial Bank, with an annual interest rate of 9.15%, guaranteed by Cheng Lian Co., maturing on September 21, 2012		1,897,322	-
	$	17,589,767	$	15,908,055

The interest expenses for these bank loans were $300,779 and $284,223 for the three months ended March 31, 2012 and 2011, respectively. The weighted average annual interest rates for these bank loans were 7.50% and 6.23% at March 31, 2012 and December 31, 2011, respectively. The loans’ terms are between five and twelve months. The collateralized net book value of the lands for these bank loans was $4,058,278 and $4,054,971 at March 31, 2012 and December 31, 2011, respectively. The collateralized net book value of the equipment for these bank loans was $2,258,286 and $2,357,572 at March 31, 2012 and December 31, 2011, respectively. The collateralized net book value of the buildings for these bank loans was $4,558,438 and $4,281,810 at March 31, 2012 and December 31, 2011, respectively. The company subsequently repaid matured bank loans through the date the financial statements have been issued.

NOTE 12 –Long-term loan

In January 2011, the Company borrowed $706,051, from Jiangsu Rural Commercial Bank, with a fixed interest rate of 6.71%, 110% over the benchmark interest rate of the People's Bank of China. Pursuant to the loan agreement, collateralized by office building, the Company shall repay in average capital method each quarter during the period from January 18, 2011 to January 17, 2014. As of March 31, 2012, $175,502 was due within one year.

The Company's long-term loan outstanding as of March 31, 2012 and December 31, 2011 as follows:


		March 31, 2012		December 31, 2011
		(Unaudited)
Long-term loan-current portion	$	175,502	$	174,399
Long-term loan		246,652		303,235

Total long-term loan	$	422,154	$	477,634

The payment schedule of the Company's long-term loan outstanding as follows:


As of December 31,		Amount
		(Unaudited)
2012		175,502
2013		234,004
2014		12,648
Total	$	422,154

NOTE 13 –Notes payable

The Company issued certain notes payable to suppliers which are guaranteed by certain banks. These notes payable were issued as replacements of the accounts payable. The terms of these draft notes payable vary depending on the negotiations with the suppliers. Typical terms are six months. On the maturity dates, the note holders present these notes to the banks to draw cash based on the note amounts.

The Company is required to make a restricted security deposit between 30% and 100% of the face amount of the notes in the banks until the notes are settled. Cash restricted for this purpose amounted to $6,895,580 and $5,124,559 as of March 31, 2012 and December 31, 2011, respectively.

NOTE 14 –Other payables

Other payables as of March 31, 2012 and December 31, 2011 consisted of the following:


		March 31, 2012		December 31, 2011
		(Unaudited)
Payable for purchasing equipment	$	37,537	$	39,419
Accrued expense		512,775		396,456
Payroll payable and welfare payables		229,124		188,437
Other tax payables		152,857		7,099
Others		107,386		81,647

	$	1,039,679	$	713,058

Accrued expense represented utility and rental expenses. The Company accrued utility expense and rental expense according to the contracts.

NOTE 15 –Capital lease payable

In September 2009, the Company signed a lease agreement with an equipment supplier under a capital lease arrangement. The arrangement entitles the Company to purchase the leased high-speed stretch yarn machines at $0 at the end of the 3-year lease term. The installations for these machines were completed in December 2009. The leased assets were recorded under property plant and equipment at the lower of (a) the fair value of the leased asset at the inception of the lease or (b) the present value of the minimum lease payments (excluding executing costs) over the lease term, and amortized over the estimated productive lives, which is normally 10 years, on a straight-line basis. Capital lease obligations at March 31, 2012 and December 31, 2011 consisted of the following:



		March 31, 2012		December 31, 2011
		(Unaudited)
Capital lease obligation	$	125,263	$	199,508

Total capital lease obligation	$	125,263	$	199,508

Interest expenses amortized under capital lease for the three months ended March 31, 2012 and 2011 was $2,668 and $6,618.

The following table sets out the remaining contractual maturities at the balance sheet date of the capital lease, which are based on contractual undiscounted cash flows (including interest payments computed using loan rate of the People’s Bank of China.) and the earliest date the Company would be required to repay:

As of March 31, 2012 and December 31, 2011, the gross amount of the equipment recorded under capital lease agreement was $1,093,841 and $1,086,967, depreciation expense for the three months ended March 31 2012 and 2011 was $23,060and $22,118.

NOTE 16 –Statutory reserve

The Company is required to allocate at least 10% of its after tax profits as determined under generally accepted accounting principal in the PRC to a statutory surplus reserve until the reserve balance reaches 50% of its registered capital. The accumulated balance of the statutory reserve of the Company as of March 31, 2012 and December 31, 2011 were both $1,606,654.

In accordance with PRC laws and regulations, the Company is restricted in its ability to transfer a portion of its net assets to the Company in the form of dividends, which amounted to both $1,606,654 representing the amount of accumulated balance of statutory reserve of Jinkai and Hangyu attributable to the Company, as of March 31, 2012 and December 31, 2011.

NOTE 17 –Government grants

Government grants of $240,503 and $154,794 for the three months ended March 31, 2012 and 2011, respectively, represented governmental subsidies received by the Company from the local government as the innovation fund to the Company as a Technology Middle/Small Enterprise.

NOTE 18 –Income taxes

Income tax benefit amount $209,013 for the three months ended March 31, 2012 represents deferred taxes due to the operating loss from the subsidiary Jinkai during the three months ended March 31, 2012. Income taxes expense amount $314,828 for the three months ended March 31, 2011 represents PRC current income taxes.

The Company's subsidiaries in China are subject to the PRC Enterprise Income Tax (EIT) on taxable income. According to PRC tax laws and regulations, the Company's subsidiaries in China are subject to EIT with a tax rate of 25% after January 1, 2008. The Company's distributions from its PRC subsidiaries are subject to U.S. federal income tax at 34%, less any applicable qualified foreign tax credits. Due to the Company's policy of reinvesting its earnings in its PRC business, the Company has not provided for deferred tax liabilities (which does not include any potential qualified foreign tax credits or potential PRC dividend withholding taxes), for U.S. federal income tax purposes on its PRC subsidiaries' undistributed earnings.

NOTE 19 –Related party balance

Amount due from a related party

The amount due from a related party represented advance payments for the procurement of raw materials.

Notes payable-a related party

The notes payable-a related party represented payments for the procurement of raw materials.

NOTE 20–Reverse merger and common stock (restatement of the stockholders’ equity)

SEC Manual Item 2.6.5.4, Reverse Acquisitions, requires that “in a reverse acquisition the historical stockholders’ equity of the accounting acquirer prior to the merger is retroactively reclassified (a recapitalization) for the equivalent number of shares received in the merger after giving effect to any difference in par value of the registrant’s and the accounting acquirer’s stock by an offset in paid in capital.”

Pursuant to the terms of the Share Exchange Agreement, Golden shareholders transferred to the Company all of the Golden shares in exchange for the issuance of 170,948,684 shares of the Company’s common stock. Therefore, the Company reclassified its common stock and additional paid-in-capital accounts for the period ended March 31, 2012 and year ended December 31, 2011 accordingly.

The Company had 80,000,000 shares of common stock authorized, with a par value of $0.001 per share. Prior to the share exchange on December 22, 2010, the Company had 8,525,000 shares issued and outstanding. Due to a shortage of currently authorized shares, 70,000,000 shares were issued at the Closing of this transaction and the remaining shares will be issued at such time as the Company has completed an amendment to its articles to increase its authorized shares or effects a reverse stock split. Golden’s owners waived the right to receive the remaining shares as the condition of closing the transaction, subject to being able to receive them at some future time. As of March 31, 2012, 78,525,000 shares are issued and outstanding, and 100,948,648 shares are pending to be authorized and issued. These shares have been recorded in the balance sheets as common stock to be authorized and issued.

NOTE 21 –Concentrations and credit risks

As of March 31, 2012 and December 31, 2011, the Company held cash in banks of $3,836,010 and $2,699,255, respectively that is uninsured by the government authority. To limit exposure to credit risk relating to deposits, the Company primarily places cash deposits only with large financial institutions in the PRC with acceptable credit ratings.

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. The business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

No single customer accounted for 10% or more of total sales for the three months ended March 31, 2012 and 2011.

Two major suppliers accounted for 77% ($8,546,618) of the Company’s inventory purchases for the three months ended March 31, 2012. Two major suppliers accounted for 92% ($17,016,035) of the Company's inventory purchases for the three months ended March 31, 2011. If these suppliers terminate their supply relationship with the Company, the Company may be unable to purchase sufficient raw material on acceptable terms, and finally the Company’s financial results may be adversely affected.

NOTE 22 – Commitments and contingencies

The Company is not currently a party to any legal proceeding, investigation or claim which, in the opinion of the management, is likely to have material adverse effect on the business, financial condition or results of operations.

The Company has not recorded any legal contingencies as of March 31, 2012.

Guaranteed Bank Loans

The Company has guaranteed certain loans for third-party enterprises, which, in turn, have guaranteed loans for the Company. These guarantees require payment from the Company in the event of default on payment by the respective debtor and, if the debtor defaults, the Company may be required to pay amounts outstanding under the related agreements in addition to the principal amount guaranteed, including accrued interest and related fees.

The Company and these third-party enterprises have been guaranteeing loans for each other in their day-to-day operations. Both of these enterprises and the Company are considered good reputation debtors by local banks. The banks allow these companies to guarantee loans for each other instead of requiring the loans be secured by collateral. None of the enterprises for which the Company has guaranteed loans has defaulted on any loan repayments, and accordingly, the Company has not recorded any liabilities or losses on such guarantees.

Bank loans that the Company has guaranteed for third-party enterprises consist of the following as of March 31, 2012:


Financial institutions	Amount	Duration	Borrower
China Construction Bank Taicang Branch	$ 1,264,882	March 2, 2012 to March 1, 2013	Taicang Jinshun Textile Co., Ltd

Agriculture bank of China Taicang Branch	6,324,411	September 7, 2011 to September 6, 2012	XiangTang Group Textile Co., Ltd

Minsheng Bank of China Nanjing Branch	1,581,103	July 4, 2011 to July 4, 2012	Jiangsu Xinxiang Textile Co., Ltd

Taicang Rural Commercial Bank	1,075,150	November 14, 2011 to May 13, 2012	Taicang Zhongming Textile Co., Ltd
	$ 10,245,546

NOTE 23 –Earnings per share

(a)

The following table presents a reconciliation of actual basic and diluted earnings per share:


		March 31,
		2012		2011
		(Unaudited)		(Unaudited)
Weighted-average shares of common stock outstanding Basic and diluted- actual		78,525,000		78,525,000
Net income/(loss) available for common shareholders	$	(624,417)	$	813,118
Basic and diluted earnings per share – actual	$	(0.01)	$	0.01

All share and per share data have been retroactively adjusted to reflect the recapitalization of the Company after the exchange agreement.

(b) In the share exchange on December 22, 2010, the Company agreed to issue 170,948,684 shares of common stock. Due to a shortage of currently authorized shares, 70,000,000 shares were issued at the closing of this transaction. Therefore, the Company has 78,525,000 shares of common stock issued and outstanding as of March 31, 2012, and the remaining shares will be issued in the future. The following table presents a reconciliation of pro forma basic and diluted earnings per share which give the effect that the remaining shares to be issued as if the remaining shares had issued on the closing of this transaction. All share and per share data have been retroactively adjusted to reflect the recapitalization of the Company after the share exchange agreement.


		March 31,
		2012		2011
		(Unaudited)		(Unaudited)
Weighted-average shares of common stock outstanding Basic and diluted–pro forma		179,473,684		179,473,684
Net income/(loss) available for common shareholders	$	(624,417)	$	813,118
Basic and diluted earnings per share–pro forma	$	(0.00)	$	0.00

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

Disclaimer Regarding Forward-Looking Statements

This Current Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,” “believes,” “management believes” and similar language. Except for the historical information contained herein, the matters discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this report are forward-looking statements that involve risks and uncertainties. The factors listed in the section captioned “Risk Factors,” as well as any cautionary language in this report; provide examples of risks, uncertainties and events that may cause our actual results to differ materially from those projected. Except as may be required by law, we undertake no obligation to update any forward-looking statement to reflect events after the date of this Form 10-Q.

Overview

We are a premium chemical fiber manufacturer of polyester fibers with operations based in Suzhou city, Jiangsu province. We commenced operations in 2001. We manufacture two types of chemical fibers, Pre-Oriented Yarn ( “POY”) and Draw Texturing Yarn (“DTY”). Our products are used to produce a variety of clothing and textile products. We primarily sell our products to local distributors and textile manufacturers in the People’s Republic of China (the “PRC”). Our products are sold under the “Jinkai” brand, which is widely recognized among our customers as a premium brand. We place strong emphasis on product quality and use our modern production facility and industry expertise to produce high quality polyester fibers.

Sales

We primarily focus on maintaining current business relationships as well as developing new ones. We have established four sales offices in Jiangsu Taicang, Jiangsu Jiangyin, Jiangsu Wujiang and Zhejiang Haining in efforts to provide our customers more convenient sales points and easier access to customer support. We typically charge a slight premium on our products as compared with other nearby chemical fiber manufacturers. Our order sizes vary from 1 to 1,000 metric tons and the duration of orders can vary from 10 days to 5 months. Typically, we require new customers to make full payments before shipment of our products. For long-time customers with good payment history, we require them to pay 30% down payment, with the remaining payment due 30 days after delivery.

Our business is affected by many factors, including the following:

(a)Raw Material Prices

Our main raw material is PET (Polyethylene Terephthalate), which is derived from crude oil; hence the fluctuation of crude oil price is an important factor affecting PET prices, and market supply and demand relations also affect PET prices.

(b)Our Production Capacity

Our production capacity is a function of our factory space, equipment, and staff experience and technical level. We currently produce at full production capacity and our ability to expand our production will have significant impact in our ability to increase sales. We added a new POY production line at the end of 2010, and a new facility put into service at the end of May, 2011. Currently, we have outsourced a portion of our production to keep up with our current sales levels.

(c)Competition

The chemical fiber market in China is large and fragmented. There are many other companies that make similar products, and thus price levels are set by competition in the marketplace. We believe that we are considered better than average in quality and service, and accordingly have been receiving a moderate premium. We are located in a textile intensive region and have a large number of customers within a 200KM radius of our facility. While the China chemical fiber market is vast and national price levels affect local levels, most of our competition takes place from regional companies, as customers desire quick delivery. Also chemical fiber is a major cost component for fabric makers and thus they often prefer chemical fiber suppliers that are closer in proximity to foster closer business ties. Likewise we place great emphasis on the customer relationship, because all of our customers can find other sources if our price, quality, or service became noncompetitive.

Cost of Sales

Our cost of sales consists primarily of raw materials, direct labor and production overhead costs.

Our key raw material is PET and we primarily procure this from several nearby raw material suppliers, both located within 200 kilometers of our production facility. Direct labor includes salaries, wages and staff related costs of plant operators and those who are directly involved in the production of our products. Overhead consists mainly of depreciation charges on machinery, utilities (water and electricity) and other factory related costs. In addition to the volume of production, our costs of sales are affected by, (a) factors affecting the costs of raw materials, namely, the market demand and supply conditions for crude oil; (b) factors affecting labor costs, namely demand and supply of labor, general wage levels, and government regulations; as well as (c) factors affecting general manufacturing overhead, namely, our depreciation expense resulting from capital expenditures and general prices of utilities charges.

Selling, General and Administrative Expenses

Our selling and distribution costs consist of transportation fees, advertising and payroll-related costs. Our general and administrative costs consist of payroll-related costs, depreciation, office expenses and legal and professional fees.

Other Income/ (Expense)

Our other income/ (expense) consist of subsidy income, interest income, interest expense and other income. According to the governmental policies and regulations on encouraging the development of domestic enterprises, we sometimes receive government subsidies in the form of income-tax rebates, technical renovation subsidies, and incentive subsidies.

Interest Expense

Our interest expense consists of interest expense based on our bank borrowings.

Income Tax Expense

We pay income tax in accordance with our local divisional taxing authority.

Seasonality

We have lower sales during the Chinese Spring Festival, which usually occurs in January or February. Our customers typically halt production during this time and thus demand shrinks for our products. We give our factory workers time off for this holiday and temporarily halt production.

Results of Operations for the Three Months Ended March 31, 2012 Compared To the Three Months Ended March 31, 2011

The following table sets forth a summary of certain key components of our results of operations for the periods indicated in dollars and as a percentage of sales.


	Three Months Ended March 31,
	2012			2011			Change in %
Sales	$	11,275,226	100.0%	$	18,811,810	100.0%	-40.1%
Cost of Sales		10,913,725	96.8%		16,735,803	89.0%	-34.8%
Gross Margin		361,501	3.2%		2,076,007	11.0%	-82.6%
General and Administrative Expenses		787,435	7.0%		670,993	3.6%	17.4%
Selling Expenses		145,018	1.3%		220,202	1.2%	-34.1%
Income/ (loss) From Operations		(570,952)	-5.1%		1,184,812	6.3%	-148.2%
Other Expense		262,478	2.3%		56,866	0.3%	361.6%
Income/(loss) Before Income Tax Expense		(833,430)	-7.4%		1,127,946	6.0%	-173.9%
Income Tax Expense/(benefit)		(209,013)	-1.9%		314,828	1.7%	-166.4%
Net income/(loss) attributable to Matches, Inc.		(624,417)	-5.5%	$	813,118	4.3%

	$						-176.8%

Sales

For the three months ended March 31, 2012, our sales decreased by 40.1% to $11,275,226 from $18,811,810 for the three months ended March 31, 2011. This decrease in our sales is mainly due to the decrease in our product prices and decrease in our sales volume. As market demand has got lesser and horizontal competition is heating up, which made the company have to decrease the sales price. As a result, the average sales price decreased from $2,309 per metric ton to $1,524 per metric ton. Also, the sales volume decreased by 5% from 7,726 metric ton as of March 31, 2011 to 7,365 metric ton as of March 31, 2012.

Cost of Sales

Compared three months ended March 31, 2012 and three months ended March 31, 2011, the cost of sales decreased by 34.8%. The decrease is mainly due to decrease in our sales volume.

Gross Profit and Gross Margin

Our gross profit decreased 82.6% from $2,076,007 for the three months ended March 31, 2011 to $361,501 for the three months ended March 31, 2012, and the gross margin decreased from 11.0% to 3.2% accordingly. This decrease is mainly due to the higher price of main raw material PET, increased worker salary levels and weakness of market demand.

General and Administrative Expenses and Selling Expenses

General and administrative expenses include payroll-related costs, social insurance, depreciation, legal and professional fees. Compared three months ended March 31, 2012 with the same period of 2011, our general and administrative expenses increased 17.4% from $670,993 to $787,491. This increase was primarily due to the following expenses which increased from 2011 to 2012: salary expense, as the Company has raised the salary level of staff and recruited several full-time management personnel since 2011; social insurance, as the Company broadened the payment scale of staff social insurance; and depreciation expense, due to a new facility put into service at the end of May, 2011.

Selling expenses include transportation fees, advertising and payroll-related costs. For the year ended December 31, 2011, selling expenses decreased 34.1% from $220,202 to $145,018. This was primarily due to the decrease in transportation fees as sales volume decreased.

Other Income/(Expense)

The following table sets forth a breakdown of the other income/(expense) of the Company:


		Three Months Ended March 31,
		2012		2011
		(Unaudited)		(Unaudited)
-Government grants	$	240,503	$	154,794
-Interest Income		8,364		68,584
-Interest Expense		(526,626)		(284,223)
-Other Income		15,281		3,979
Other Expense, net	$	(262,478)	$	(56,866)

Other net expense includes interest expense offset by subsidy income, interest income and others. Compared the three months as of March 31, 2012 with the same period of 2011, other expense has increased 361.6% from $56,866 to $262,478. The other expense increase was mainly due to the increase of interest expense. Interest expense increased 85% from $284,223 to $526,626 mainly due to the increase of bank loan interest rate.

Income Tax Expense/(Benefit)

As the result of the deferred tax assets was recognized during the three months ended March 31, 2012, we recognized income tax benefit amount $209,013 for three months ended March 31, 2012, compared to income tax expense amount $314,828 for the same period in 2011.

Net Income/(loss)Attributable to Matches, Inc.

We recorded $624,417 net loss attributable to Matches, Inc. For the three months ended March 31, 2012, compared to net income $813,118 attributable to Matches, Inc. for the same period in 2011.

LIQUIDITY AND CAPITAL RESOURCES

The Company has short-term bank loans outstanding of $17,589,767 and $15,908,055 at March 31, 2012 and December 31, 2011 respectively. The Company plans to use cash generated from operations and proceeds from new bank loans to pay off all outstanding short-term bank loans in 2012.Upon maturity, the Company’s majority shareholder intends to provide sufficient working capital to allow the Company to repay the loan and fulfill its other payment obligations.

The Company believes that its cash and cash equivalents balance at December 31, 2011, estimated cash inflows from operations for 2012, and the additional proceeds committed from its majority shareholder will be sufficient to meet the Company’s liquidity requirements for 2012. However, in the event of unforeseen circumstances, or unfavorable market or economic developments, the adequate capital is not available to us as required, or is not available on favorable terms; our business, financial condition and results of operations may be adversely affected.

Restricted net assets

Our ability to pay dividends is primarily dependent on our receiving distributions of funds from our subsidiaries, which is restricted by certain regulatory requirements. Relevant PRC statutory laws and regulations permit payments of dividends by our PRC subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, our PRC Subsidiaries are required to set aside at least 10% of their after-tax profit, after deducting any accumulated deficit, based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends. Our off-shore subsidiaries, including Golden Stone Rising Limited (“Golden”) and Triple Success Holding LLC (“Triple Success “), do not have material cash obligations to third parties. Therefore, the dividend restriction does not impact the liquidity of the companies. There is no significant difference between accumulated profit calculated pursuant to PRC accounting standards and those reflected in the financial statements prepared in accordance with U.S. GAAP.

As of March 31, 2012 and December 31, 2011, restricted retained earnings were $1,606,654 and $1,606,654, respectively, and restricted net assets were $12,556,724 and $12,556,724, respectively. The unrestricted retained earnings as of December 31, 2011 and 2010 were $3,302,366 and $3,926,783, respectively, which were the amounts ultimately available for distribution if we were to pay dividends.

Restricted cash

The Company from time to time pays suppliers by means of notes payable. The Company is required to make a restricted security deposit between 30% and 100% of the face amount of the notes accepted by the bank for the Company until the notes are settled. Cash restricted for this purpose amounted to $6,895,580 and $5,124,559 as of March 31, 2012 and December 31, 2011, respectively, with an increase of $1,771,021, or approximately 34.6%.

The following table sets forth the summary of our cash flows for three months ended March 31, 2012 and March 31, 2011


		Three Months Ended March 31,
		2012		2011
		(Unaudited)		(Unaudited)
Net cash provided by/(used in) operating activities	$	(242,294)	$	5,451,812
Net cash used in investing activities		(85,355)		(1,808,848)
Net cash provided by/(used in) financing activities		1,448,147		(4,171,102)
Effect of foreign currency fluctuation on cash and cash equivalents		16,257		39,085
Cash and cash equivalents-beginning of period		2,699,255		6,403,120
Cash and cash equivalents- end of period	$	3,836,010	$	5,914,067

Cash flow from Operating Activities

Net cash used in operating activities for three months ended March 31, 2012 was $242,294. This was attributable to our net loss of $624,417, adjusted by non-cash related expenses including depreciation of $566,445, amortization of land use rights and land development $ 23,091, and a net decrease in cash from working capital items of $207,413. The net decrease in working capital items was mainly due to the increase in restricted cash, inventories, and advance to suppliers, offset by the increase in notes payable.

Cash Flow from Investing Activities

During the three months ended March 31, 2012, net cash used in investing activities was $85,355, compared to $1,808,848 for the three months ended March 31, 2011. The decrease was primarily due to the decrease in purchase of property and equipment.

Cash Flow from Financing Activities

During the three months ended March 31, 2012, net cash provided by financing activities was $1,448,147 which mainly consisted of a repayment of capital lease obligations of $75,563, net proceeds from bank loans of $1,523,710. As compared with the same period of 2011 in which the net cash used in financing activities was $ 4,171,102, the increase of cash provided by financing activities was mainly due to the decrease of repayments of bank loans from $8,231,402 for three months as of March 31, 2011 to $5,121,754 for the same period of 2011 and the increase in proceeds from bank loans from $ 4,138,465 to $6,645,464 for daily operations.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, regulations and related forms, and that such information is accumulated and communicated to our principal executive officer, as appropriate, to allow timely decisions regarding required disclosure.

As of March 31, 2012 we carried out an evaluation, under the supervision and with the participation of our principal executive officer and our principal financial officer of the effectiveness of the design and operation of our disclosure controls and procedures as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e). Based upon those evaluations, our chief executive officer and our chief financial officer concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q. As such we believe that all material information relating to us and our consolidated subsidiaries required to be disclosed in our periodic filling with the SEC (i) is recorded, processed, summarized and reported within the required time period and (ii) is accumulated and communicated to our management, including our principal, executive officers and principal financial officers, as appropriate to allow timely decision regarding required disclosure. Based upon those evaluations, our chief executive officer and our chief financial officer concluded that as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures and our internal control over financial reporting were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in internal controls. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s internal controls subsequent to the date of their evaluation.

PART II

Item 1. Legal Proceedings.

We are not a party to any pending legal proceeding that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

Item 1A. Risk Factors.

Not applicable as the Company is a smaller reporting company.

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

None.

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

Not applicable

Item 5. Other Information.

None.

Item 6. Exhibits.

Number

Description

2.1

Share Exchange Agreement(2)

3.1

Articles of Incorporation(3)

3.2

Bylaws(3)

10.1

Entrusted Management Agreement(2)

10.2

Shareholders’ Voting Proxy Agreement(2)

10.3

Exclusive Option Agreement(2)

10.4

Shares Pledge Agreement(2)

10.5

Call Option Agreement between Hung Tsui Mei and 16 persons, with schedule of details.(2)

16.1

Letter from Sam Kan & Company regarding change in accountants(2)

16.2

Letter from Bernstein & Pinchuk, LLC.(4)

31.1

Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)(5)

31.2

Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)(5)

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350(5).

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350(5).

_________________________________________

(1)

Incorporated by reference to the exhibit so numbered in the Company's Registration Statement on Form S-1, file number 333-149293.

(2)

Incorporated by reference to the exhibit so numbered in the Company's Current Report on Form 8-K dated December 17, 2010.

(3)

Incorporated by reference to such exhibit as filed with the Company's Annual Report on Form 10-K for the year ended December 31, 2010.

(4) Incorporated by reference to such exhibit as filed with the Current Report on Form 8-K dated April 15, 2011.

(5)

Filed herewith.

SIGNATURES

Pursuant to the requirements the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

MATCHES, INC.

Date: May 14, 2012

By /s/ Zhao Zhimeng

Zhao Zhimeng

Chief Financial Officer

(Principal Financial and Accounting Officer) and Duly Authorized Officer

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company X

(Do not check if a smaller reporting company)

MATCHES, INC. 10-Q