UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

¨	TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________________ to _________________________

Commission file number: 000-49852

DAHUA INC.

(Exact name of small business issuer as specified in its charter)

Delaware	04-3616479
State or other jurisdiction	(I.R.S. Employer Identification No.)
of incorporation or organization)

8th Floor, Officer Tower 3, Henderson Center, 18# Jianguomennei Street

Dongcheng District, Beijing, China 100005

(Address of principal executive offices)

86-10-6480-1527

(Issuer's telephone number)

N/A

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

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). The registrant has not been phased into the Interactive Data reporting system.

Yes ¨ No ¨

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

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-accelerated Filer ¨ Smaller Reporting Company x

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 25,015,000 shares of common stock, par value $.0001, as of August 15, 2010

DAHUA INC.

Table of Contents

Part I. Financial Information

Item1. Financial Statements

Consolidated Balance Sheet as of June 30, 2010 (unaudited) and
December 31, 2009	3

Consolidated Statements of Operations and Comprehensive Income (Loss)
for the Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)	4

Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2010 and 2009 (Unaudited)	5

Notes to Consolidated Financial Statements	6

Item 2. Management's Discussion and Analysis or Plan of Operation	14

Item 3. Qualitative and Quantitative Disclosures About Market Risk	17

Item 4T. Controls and Procedures	18

Part II. Other Information

Item 1. Legal Information	18
Item 1A. Risk Factors	18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3. Defaults Upon Senior Securities	24
Item 4. (Removed and Reserved)	24
Item 5. Other Information	24
Item 6. Exhibits and Reports on Form 8-K	25

Signatures	26

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

DAHUA, INC.

Consolidated Balance Sheets

	June 30, 2010			December 31, 2009
	unaudited
ASSETS
Current assets:
Cash and cash equivalents	$	487,648		$	65,801
Inventory-short-term		3,699,847			3,615,644
Prepaid expenses		18,039			42,603
Deferred taxes – current		589,694			480,700
Total Current Assets		4,795,228			4,204,748

Property, plant and equipment, net of accumulated depreciation		1,507,644			1,574,567

Construction in progress		157,386			-
Inventory-long-term		5,526,142			3,278,726
Net other receivables		8,242			4
Prepaid tax		605,811			569,340
Restricted cash		738,351			734,317
Total Assets	$	13,338,804		$	10,361,702

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	851,764		$	423,940
Customer deposits		3,858,251			3,681,057
Short-term loans - related parties		4,321,284			1,683,423
Accrued interest - short-term loans, related parties		305,903			229,373
Other accruals		197,304			225,593
Total Current Liabilities		9,534,506			6,243,386

Dahua Inc. stockholders' equity:
Preferred stock: par value $0.0001; 20,000,000 shares authorized;
none issued and outstanding		-			-
Common stock: par value $0.0001; 80,000,000 shares authorized;
25,015,000 shares issued and outstanding		2,502			2,502
Additional paid-in capital		3,131,200			3,131,200
Retained earnings (deficit)		(828,765	)		(560,814	)
Accumulated other comprehensive income		805,061			788,324
Total Dahua Inc. stockholders' equity		3,109,998			3,361,212

Non-controlling interest		694,300			757,104
Total Equity		3,804,298			4,118,316
Total Liabilities and Equity	$	13,338,804		$	10,361,702

See accompanying notes to unaudited consolidated financial statements

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DAHUA, INC.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)


	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
Revenues:
Sales revenues	$	-		$	-		$	-		$	-
Cost of goods sold		-			-			-			-
Gross profit		-			-			-			-
Expenses:
Advertising		17,491			-			17,491			-
Depreciation		37,959			27,300			76,747			54,960
Payroll expense		36,186			32,818			66,068			45,077
Other general and administrative		90,191			83,630			208,005			180,608

Total expenses		181,827			143,748			368,311			280,645
Income (loss) from operations		(181,827	)		(143,748	)		(368,311	)		(280,645	)

Other income (expense)
Interest expense		(59,844	)					(72,576	)		-
Interest income		113			1,051			132			2,349
Total other income (expense)		(59,731	)		1,051			(72,444	)		2,349

Income before income taxes		(241,558	)		(142,697	)		(440,755	)		(278,296	)

Income tax expense (benefit)		(56,017	)		(35,674	)		(105,816	)		(69,574	)

Net income (loss)		(185,541	)		(107,023	)		(334,939	)		(208,722	)
Less: Net income (loss) attributable to the noncontrolling interest		(37,108	)		(21,405	)		(66,988	)		(41,744	)
Net income (loss) attributable to Dahua Inc.	$	(148,433	)	$	(85,618	)	$	(267,951	)	$	(166,978	)

Earnings per share - basic and diluted:
Net income attributable to Dahua Inc. common stockholders	$	(0.01	)	$	(0.00	)	$	(0.01	)	$	(0.01	)

Weighted -average shares outstanding, basic and diluted		25,015,000			25,015,000			25,015,000			25,015,000

Dahua Inc. Comprehensive Income
Net income (loss)	$	(185,541	)	$	(107,023	)	$	(334,939	)	$	(208,722	)

Other comprehensive income (loss), net of tax
Foreign currency translation adjustment		19,786			(47,162	)		20,922			1,631
Comprehensive income (loss)	$	(165,755	)	$	(154,185	)	$	(314,017	)	$	(207,091	)

Comprehensive income (loss) attributable to the noncontrolling interest		33,151			28,797			62,804			41,329
Comprehensive income (loss) attributable to Dahua Inc.	$	(132,604	)	$	(125,388	)	$	(251,213	)	$	(165,762	)

See accompanying notes to unaudited consolidated financial statements.

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DAHUA, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	Six months ended June 30,
	2010			2009
Cash Flows from Operating Activities:
Net loss	$	(334,939	)	$	(208,722	)
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation		76,747			54,960
Changes in operating assets and liabilities:
Inventory		(2,282,156	)		(144,449	)
Deferred taxes - current		(105,816	)		(69,574	)
Prepaid tax		(18,524	)		(3,063	)
Prepaid expenses		10,022			-
Accounts payable		394,699			(9,305	)
Customer deposits		156,181			92,016
Accrued interest		74,890			18,361
Other accruals		(733	)		(52,585	)

Net cash used in operating activities:		(2,029,629	)		(322,361	)

Cash Flows from Investing Activities:
Property, plant & equipment		(1,557	)		(2,037	)
Construction in progress		(156,591	)		(133,320	)
Proceeds from other receivables		-			157,548
Other receivables incurred		(8,197	)		-
Due from related parties		-			659

Net cash provided by (used in) investing activities:		(166,345	)		22,850

Cash Flows from Financing Activities:
Net proceeds from loans payable - related parties		2,615,328			833,009
Net proceeds from other receivable					-

Net cash provided financing activities:		2,615,328			833,009

Effect of rate changes on cash		2,493			141

Increase (decrease) in cash and cash equivalents		421,847			533,639

Cash and cash equivalents, beginning of period		65,801			176,935

Cash and cash equivalents, end of period	$	487,648		$	710,574

Supplemental disclosure of cash flow information:
Interest paid in cash	$	-		$	-
Income taxes paid in cash	$	-		$	2,964

See accompanying notes to unaudited consolidated financial statements

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DAHUA INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of operations

Dahua, Inc. (“Dahua”) was incorporated on March 8, 2002 in the State of Delaware as Norton Industries Corp. (“Norton”). The name was changed to Dahua, Inc. on February 7, 2005 as result of a reverse acquisition in which Norton acquired all capital shares of Bauer Invest Inc. ("Bauer"). Incident to the reverse acquisition the Company paid $100,000 to the previous shareholders of Norton for shares of stock that were canceled. The acquisition was accounted for as a reverse merger, as the post acquisition owners and control persons of Dahua are substantially the same as the pre acquisition owners and control persons of Bauer and the $100,000 paid to purchase and cancel the previous shares was treated as an adjustment to paid in capital.

Bauer Invest Inc. was incorporated on December 10, 2003, under the laws of the Territory of the British Virgin Islands (“BVI”). Bauer has had no operations other than the acquisition of 80% of Beijing Dahua Real Estate Development, Ltd. (“Beijing Dahua”) on May 25, 2004. The Subsidiary is a corporation established on September 24, 2001 in the People’s Republic of China (“PRC”). The acquisition was accounted for as a reverse merger, as the post acquisition owners and control persons of Bauer are substantially the same as the pre- acquisition owners and control persons of the subsidiary.

Zhuolu Dahua Real Estate Development, Ltd. (“Zhuolu Dahua”) was established on May 21, 2008 in the People’s Republic of China (“PRC”). It is the wholly-owned subsidiary of Beijing Dahua Real Estate Development, Ltd.

These financial statements are essentially those of Beijing Dahua and Zhuolu Dahua with a recapitalization to show the effects due to the reverse mergers. The consolidated entity is hereafter referred to as ‘the Company’.

The Company engages in the development of real estate and the sale of commodity housing. The Company has completed the construction of the First Phase of Dahua Garden and all of the houses are sold or available for sale. The Company is now engaging in the development of real estate and the sale of commodity housing in Zhuolu county in Hebei province. The company has got all the permits needed and is now in the process of construction.

2. Basis of Presentation

The consolidated financial statements include the accounts of Dahua, Inc., Bauer Invest, Inc., Beijing Dahua Real Estate Development Ltd and Zhuolu Dahua Real Estate Development Ltd. All inter-company accounts and transactions have been eliminated in consolidation. The Company records non-controlling interest, which reflects the 20% portion of the earnings of Beijing Dahua Real Estate Development, Ltd. allocable to holders of the non-controlling interest.

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). This basis differs from that used in the statutory accounts of the Company, which were prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises in the PRC. All necessary adjustments have been made to present the financial statements in accordance with US GAAP.

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3. Summary of Significant Accounting Policies

Economic and Political Risks

The Company faces a number of risks and challenges as a result of having primary operations and markets in the PRC. Changing political climates in the PRC could have a significant effect on the Company’s business.

Cash and Cash Equivalents

For purposes of the statements of cash flows, cash and cash equivalents includes cash on hand and demand deposits held by banks. Deposits held in financial institutions in the PRC are not insured by any government entity or agency.

Trade Accounts Receivable

Trade accounts receivable are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection of the full amount becomes questionable. The Company had no trade accounts receivable at June 30, 2010.

Inventories

Inventories consist primarily of land acquisition and development costs, engineering, infrastructure, capitalized interest, and construction costs. The inventories are valued at cost based on the level of completion using the weighted-average method.

Property, plant & equipment

Property, plant & equipment are carried at cost less accumulated depreciation, which is computed using the straight-line method over the useful lives of the assets. Upon disposal of assets, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in income. Equipment is depreciated over their estimated useful lives as follows:

Computer equipment	3 years
Office equipment	7 years
Vehicles	7 years
Land and Buildings	20 years

Depreciation expense for the six months periods ended June 30, 2010 and 2009 was $76,747 and $54,960, respectively.

Long-term assets of the Company are reviewed annually to assess whether the carrying value has become impaired, according to the guidelines established in the Accounting Standards Codification (“ASC Topic”) 360. The Company also evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. No impairment of long-term assets was recorded in the periods reported.

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Revenue Recognition

The Company recognizes revenue on the sale of a house when the consummation of a sale is evidenced by: 1) a contractual arrangement that is binding to both parties; 2) the exchange of all consideration (i.e. the seller has transferred to the buyer the usual risks and rewards of ownership and the buyer has made payment in full to the seller); 3) the arrangement of all permanent financing for which the seller is responsible and; 4) the performance of all conditions precedent to closing. No revenue is recognized when the Company’s receivable is subject to future subordination, as is the case when the Company guarantees a bank loan for the period prior to the certification of title transfer.

Advertising Expenses

Advertising costs are expensed as incurred. Advertising expense amounted to $17,491 and $0 for the six-month periods ended June 30, 2010 and 2009.

Foreign Currency and Comprehensive Income

The accompanying consolidated financial statements are presented in United States (“US”) dollars. The functional currency is the Yuan Renminbi (“RMB”) of the PRC. The consolidated financial statements are translated into US dollars from RMB at period-end exchange rates for assets and liabilities, and weighted average exchange rates for revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

RMB is not freely convertible into the currency of other nations. All such exchange transactions must take place through authorized institutions. There is no guarantee the RMB amounts could have been, or could be, converted into US dollars at rates used in translation.

Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize their benefits, or that future deductibility is uncertain.

Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles 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 income and expenses during the reporting period. Actual results could differ from those estimates.

Earnings per Share

Basic earnings per common share ("EPS") are calculated by dividing net income attributable to Dahua Inc. common stockholders by the weighted average number of common shares outstanding during the year. Diluted EPS is calculated by adjusting the weighted average outstanding shares, assuming conversion of all potentially dilutive securities, such as stock options and warrants. The numerators and denominators used in the computations of basic and diluted EPS are presented in the following table:

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	For the six months ended
	June 30, 2010			June 30, 2009

NUMERATOR FOR BASIC AND DILUTED EPS
Net income attributable to Dahua, Inc.
common stockholders	$	(267,951	)	$	(166,978	)

DENOMINATORS FOR BASIC AND DILUTED EPS
Weighted average shares of common stock outstanding		25,015,000			25,015,000
Add: dilutive equity securities outstanding		-			-
Denominator for diluted EPS		25,015,000			25,015,000

EPS-Basic	$	(0.01	)	$	(0.01	)
EPS-Diluted	$	(0.01	)	$	(0.01	)

The Company had no potentially dilutive securities outstanding at June 30, 2010.

4．Inventory

Inventories consist primarily of compulsory land acquisition and removal compensation costs, prophase engineering cost, infrastructure cost, capitalized interest, indirect development costs, auxiliary public establishment costs and construction and installation project costs, etc in Zhuolu Dahua and Dahua Phase II. It also represents completed houses available for sale at June 30, 2010 in Beijing Dahua. During 2005, the Company completed its housing construction of the First Phase of Dahua Garden. As of June 30, 2010, 67 units were sold, 8 units were reserved with clients’ deposits.

As of June 30, 2010, inventory in Beijing Dahua and project in Zhuolu was as follows:

	Inventory in Beijing Dahua		Inventory in Zhuolu Dahua		Inventory in Beijing Dahua
	Phase I				Phase II
June 30, 2010	$	3,699,847	$	3,738,142	$	1,788,000
		3,699,847		3,738,142		1,788,000

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5. Construction in progress

Construction in progress represents the cost of the expansion of the new building, which was transferred to fixed assets as Land and Buildings in 2009. The purpose of the expansion is to add an interlayer in the building to act as an exhibition hall of the company. As of June 30, 2010, the balance of construction in progress was $157,386( including capitalized interest of $2,326).

6. Related Party Transactions

Short-term loans due to related parties had balances of $4,627,187 (including accrued interest) at June 30, 2010. The loans carry an annual interest rate of 6 percent and are due on demand. Interest accrued on the loans was $305,903 for the six months periods ended June 30, 2010. The interest amounts, which were accrued for the six months periods ended June 30, 2010, were partly capitalized as construction in progress and the rest were expensed as interest expenses.

7．Customer deposits

Customer deposits consist of down payments received on sales contracts for houses. When all of the conditions set forth in the Company’s revenue recognition policy are met, the Company will recognize the down payments as revenue. The aggregate of the customers’ deposits at June 30, 2010 was $3,858,251. Of the 8 units reserved, one unit deposits are money received from bank arrangements (see note 8) in the amounts of $518,341. Accordingly, the bank has liens against this unit .

8. Off-Balance Sheet Arrangements

The Company entered into an agreement with two banks that extended mortgage loans to its home buyers, where the Company agrees to provide a certain limited guarantee, which covers the risk before the conveyance of title upon closing. Upon initiating the loan on behalf of the buyer for the down payment, the Banks have withheld 5% of the loan, which was a percentage ranging from 5% to 20% in June 2006, and deposited such funds into a segregated account in each bank. At June 30, 2010, the balance of this separate account was $738,351. Since the Company does not recognize revenue when its receivables are subject to future subordination, the entire amount that could become payable to the bank under the limited guarantee is recorded as a liability on the balance sheet and is included in customer deposits, as is explained in note 7.

9. Tax

Income tax expense (benefit) consists of the following:

	Six months Ended June 30,
	2010			2009
Current:
Foreign	$	-		$	-
		-			-
Deferred:
Foreign		(105,816	)		(69,574	)
		(105,816	)		(69,574	)
Income tax expense (benefit)	$	(105,816	)	$	(69,574	)

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A reconciliation of income tax expense (benefit) to the amount computed using statutory rates is as follows:

	Six months Ended June 30,
	2010			2009
Tax at statutory rate	$	(105,816	)	$	(69,574	)
Non-deductibe expenses		-			-
	$	(105,816	)	$	(69,574	)

The Company has implemented ASC Topic 740, which provides for a liability approach to accounting for income taxes. Total deferred tax assets and liabilities as of June 30, 2010 and December 31, 2009 are as follows:

	June 30, 2010		December 31, 2009
Deferred tax assets - Tax NOL	$	589,694	$	480,700
Deferred tax liabilities		-		-
Net deferred tax asset (liability) - current	$	589,694	$	480,700

Deferred income taxes result from the effect of transactions that are recognized in different periods for financial and tax reporting purposes.

Deferred income taxes are recognized for the tax consequences of temporary differences by applying statutory tax rates to differences between the financial reporting and the tax bases of existing assets and liabilities. These temporary differences related primarily to bad debt provisions and losses on the sale of property

The company has a net operating loss carryforward of approximately $2,358,776 expiring in 2030 due to the reason that the company was in the process of construction and didn’t recognize sales revenue in these two years. The tax benefit of these net operating loss carryforwards, based on an effective tax rate of 25% is approximately $589,694.

10. Stock

The Company is authorized to issue up to 80,000,000 shares of common stock, $.0001 par value, and 20,000,000 shares of preferred stock, $.0001 par value per share. As of June 30, 2010, there were 25,015,000 shares of common stock issued and outstanding, and no shares of preferred stock were issued and outstanding.

11. Contingencies

The Company has not, historically, carried any property or casualty insurance. No amounts have been accrued for any liability that could arise from the lack of insurance. Management feels the chances of such an obligation arising are remote.

Deposits in banks in the PRC are not insured by any government entity or agency, and are consequently exposed to risk of loss. Management believes the probability of a bank failure, causing loss to the Company, is remote.

12. Others receivable

Others receivable primarily represent loans due from outside parties. As of June 30, 2010, the balance of net others receivable (including accrued interest) was $8,242. The loans due from outside parties carry an annual interest rate of 6 percent and are due within two years. The company made a provision of $7,363 for bad-debts for other receivable for the reason that collection of the full amount becoming questionable

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13. Leases

The Company leased in 1997 a pond and filled it and leveled up for land exploitation from an outside party for approximately $ 32,500 per year which will end in 2047. This lease is for an initial term of 50 years and requires fixed annual payments. In the year ended December 31, 2009 the Company paid approximately $38,061 for the lease payment. These leases contain renewal and right of first refusal options and require the adherence to certain covenants and conditions. Rental expense is recognized on the straight-line basis, although rental payments vary over the lease terms. Future minimum lease payments are as follows:

Year ending December 31,
2010	$	32,500
2011	$	32,500
2012	$	32,500
2013	$	32,500
2014	$	32,500
Thereafter	$	1,072,500
	$	1,235,000

14. Recent Accounting Pronouncements

In February 2010 the FASB issued Update No. 2010-09 “Subsequent Events (Topic 855)” (“2010-09”). 2010-09 clarifies the interaction of Accounting Standards Codification 855 “Subsequent Events” (“Topic 855”) with guidance issued by the Securities and Exchange Commission (the “SEC”) as well as the intended breadth of the reissuance disclosure provision related to subsequent events found in paragraph 855-10-50-4 in Topic 855. This update is effective for annual or interim periods ending after June 15, 2010. Management is currently evaluating whether these changes will have any material impact on its financial position, results of operations or cash flows.

In February 2010 the FASB issued Update No. 2010-08 “Technical Corrections to Various Topics” (“2010-08”). 2010-08 represents technical corrections to SEC paragraphs within various sections of the Codification. Management is currently evaluating whether these changes will have any material impact on its financial position, results of operations or cash flows.

In January 2010 the FASB issued Update No. 2010-06 “Fair Value Measurements and Disclosures—Improving Disclosures about Fair Value Measurements” (“2010-06”). 2010-06 requires new disclosures regarding significant transfers between Level 1 and Level 2 fair value measurements, and disclosures regarding purchases, sales, issuances and settlements, on a gross basis, for Level 3 fair value measurements. 2010-06 also calls for further disaggregation of all assets and liabilities based on line items shown in the statement of financial position. This amendment is effective for fiscal years beginning after December 15, 2010 and interim periods within those fiscal years. The Company is currently evaluating whether adoption of this standard will have a material impact on its financial position, results of operations or cash flows.

In January 2010 the FASB issued Update No. 2010-05 “Compensation—Stock Compensation—Escrowed Share Arrangements and Presumption of Compensation” (“2010-05”). 2010-05 re-asserts that the Staff of the Securities Exchange Commission (the “SEC Staff”) has stated the presumption that for certain shareholders escrowed share represent a compensatory arrangement. 2010-05 further clarifies the criteria required to be met to establish a position different from the SEC Staff’s position. The Company does not believe this pronouncement will have any material impact on its financial position, results of operations or cash flows.

In January 2010 the FASB issued Update No. 2010-04 “Accounting for Various Topics—Technical Corrections to SEC Paragraphs” (“2010-04”). 2010-04 represents technical corrections to SEC paragraphs within various sections of the Codification. Management is currently evaluating whether these changes will have any material impact on its financial position, results of operations or cash flows.

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In January 2010 the FASB issued Update No. 2010-02 “Accounting and Reporting for Decreases in Ownership of a Subsidiary—a Scope Clarification” (“2010-02”) an update of ASC 810 “Consolidation.” 2010-02 clarifies the scope of ASC 810 with respect to decreases in ownership in a subsidiary to those of a subsidiary or group of assets that are a business or nonprofit, a subsidiary that is transferred to an equity method investee or joint venture, and an exchange of a group of assets that constitutes a business or nonprofit activity to a non-controlling interest including an equity method investee or a joint venture. Management does not expect adoption of this standard to have any material impact on its financial position, results of operations or operating cash flows. Management does not intend to decrease its ownership in any of its wholly-owned subsidiaries.

In January 2010 the FASB issued Update No. 2010-01 “Accounting for Distributions to Shareholders with Components of Stock and Cash—a consensus of the FASB Emerging Issues Task Force” (“2010-03”) an update of ASC 505 “Equity.” 2010-03 clarifies the treatment of stock distributions as dividends to shareholders and their affect on the computation of earnings per shares. Management does not expect adoption of this standard to have any material impact on its financial position, results of operations or operating cash flows.

15. Subsequent Events

The Company has evaluated all subsequent events through the date these financial statements were issued.

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Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The discussion in this quarterly report on Form 10-Q contains forward-looking statements. Such statements are based upon beliefs of management, as well as assumptions made by and information currently available to management of the Company as of the date of this report. These forward-looking statements can be identified by their use of such verbs as "expect", "anticipate", "believe" or similar verbs or conjugations of such verbs. If any of these assumptions prove incorrect or should unanticipated circumstances arise, the actual results of the Company could materially differ from those anticipated by such forward-looking statements. The Company assumes no obligation to update any such forward-looking statements.

Overview

We, through our subsidiary Beijing Dahua Real Estate Development Ltd., are engaged in the business of development, construction and sale of luxury residential single-family homes in Beijing, China. In July 2003, we began to develop our first real estate project, Dahua Garden (the "First Phase"), which consists of 75 luxury residential units, all of which are single-family houses ranging from approximately 2,000 to 5,000 square feet, each with 3 – 4 bedrooms. The construction site is located at the northern skirt of Beijing, China. The construction began in July 2003 and was completed in December 2005. As of June 30, 2010, out of 75 luxury residential units, 67 units have been sold and 8 units were reserved with clients' deposits.

On May 21, 2008 we established Zhuolu Dahua Real Estate Development Ltd which was wholly-owned by Beijing Dahua Real Estate Development Ltd. and engage in the business of development, construction and sale of luxury residential single-family homes in Zhuolu county, Hebei province which is about 140 kilometers faraway from Beijing. The first phase of the project which known as Xuanyuan Lakefront will consist of 246 luxury residential units, all of which are single-family houses ranging from approximately 2,000 to 5,000 square feet, each with 3 – 4 bedrooms. We have got all the permits needed and are now in the process of construction. The company wants to create a demonstration base of ecological buildings circumjacent to Beijing.

We are also applying for the permits of the Second Phase of Dahua Garden. In the newly-publicized layout of Changping district the purpose of the land on which the Second Phase of Dahua Garden located has been recognized as residential land. We are now in the process of applying for the first-degree development right of this land.

Results of Operations

For the Three Months Ended June 30, 2010 and 2009

Revenues

We began our First Phase of Dahua Garden construction, which consists of 75 luxury residential units, in July 2003. The construction was completed in December 2005. For the three months ended June 30, 2010, no sales revenue was recognized in this quarter. The following table sets forth certain information about our sales of housing units:

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	Cumulative Balance as of
	June 30, 2010		March 31, 2010		December 31, 2009

Units sold		67		67		67
Units reserved with deposits		8		8		8

Total		75		75		75

Six months

Three months

ended

June 30, 2010

June 30, 2009

Houses sold

Houses reserved

For the three months ended June 30, 2010 and 2009, we didn’t recognized sales revenues from the sale of our housing units.

Cost of Goods Sold

Cost of goods sold consists primarily of land acquisition and development costs, engineering, infrastructure, capitalized interest, and construction costs. For the three months ended June 30, 2010 and 2009, we didn’t recognize cost of goods sold respectively.

Operating Expenses

For the three months ended June 30, 2010, our operating expenses were $181,827, an increase of $38,079 or 26%, as compared to $143,748 for the same period of the prior year mainly due to the increase of advertising expenses depreciation and other general and administrative .

Net Income

For the three months ended June 30, 2010, we had a net loss of $148,433, or $0.01 per share, as compared with a net loss of $85,618, or $0.00 per share, for the same period of the prior year mainly due to the increase of interest expense which increased from $0 to $59,844.

For the Six Months Ended June 30, 2010 and 2009

Revenues

We began our First Phase of Dahua Garden construction, which consists of 75 luxury residential units, in July 2003. The construction was completed in December 2005. For the six months ended June 30, 2010 and 2009, no sales revenue was recognized by the company.

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Cost of Goods Sold

Cost of goods sold consists primarily of land acquisition and development costs, engineering, infrastructure, capitalized interest, and construction costs. For the six months ended June 30, 2010 and 2009, we didn’t recognize cost of goods sold respectively.

Operating Expenses

During the six months ended June 30, 2010, our operating expenses were $368,311 as compared to $280,645 during the six-month period in 2009, an increase of $87,666 or 31%, mainly due to the increase of advertising expenses and other general and administrative expenses.

Net Income

For the six months ended June 30, 2010, we had a net loss of $267,951, or $0.01 per share, as compared with a net loss of $166,978 or $0.01 per share, for the same period of the prior year.

Liquidity and Capital Resources

Since inception, our operations have been primarily funded by equity capital, unsecured short-term loans from Dahua Project Management Group ("Dahua Group"), our affiliate, and customer deposits that we received from our pre-sale of housing units.

After receiving the Residential Housing Pre-sale Permit issued by the government, we are permitted to sell the residential units to be built to the public, which is common practice in China. Upon execution of a binding purchase contract between the developer and a homebuyer, a deposit and installment payments are required to be made to the developer, which we use to construct our residential housing units. As of June 30, 2010, our customer deposit balance was $3,858,251.

We also borrow from time to time based on a verbal line of credit agreement from Dahua Group, our affiliate. The funds borrowed are unsecured and there is no upper limit on the amount of money that we can borrow as long as there are funds available and we need it for our operations. The money we borrow under this arrangement bears interest at an annual rate of 6%, repayable within 30 days upon demand by the lender. As of June 30, 2010, the short-term loans due to related parties had a balance of $4,321,284, and accrued interest of $305,903.

As of June 30, 2010, we had cash and cash equivalents balance of $487,648. For the six months ended June 30, 2010, our operating activities used $2,029,629 of net cash. During the six months ended June 30, 2010, our investing activities used $166,345 of net cash, mainly due to the construction in progress. For the same period, the financing activities provided net cash of $2,615,328 as a result of proceeds from related party loans.

As of December 31, 2005, our First Phase of Dahua Garden was completed. We are currently applying with Beijing municipal and Changping district governmental agencies for all the requisite licenses, permits, and approvals to start our Second Phase of Dahua Garden. It is estimated that approximately $60.5 million is needed to complete the Second Phase.

We are also now in the process of construction of the project in Zhuolu through our subsidiary Zhuolu Dahua Real Estate Development Ltd. The first phase of Xuanyuan Lakefront will consist of 246 luxury residential units. It is estimated that approximately $17.5 million is needed to complete the First Phase.

In addition to customer deposits, and short-term loans (line of credit) from Dahua Group, the proceeds generated from sale of the First Phase of Dahua Garden will also be used to finance projects development. There are no material commitments for capital expenditures.

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While there can be no assurance that we will have sufficient funds over the next twelve months, we believe that funds generated from the sale of our First Phase of Dahua Garden housing units, purchaser deposits from pre-sale contracts, and the line of credit provided by our affiliate, Dahua Group, will be adequate to meet our anticipated operating expenses, capital expenditure and debt obligations for at least the next twelve months. Nevertheless, our continuing operating and investing activities may require us to obtain additional sources of financing. In that case, we may seek financing from institutional investors, banks, or other sources of financing. There can be no assurance that any necessary additional financing will be available to us on commercially reasonable terms, if at all.

Off-Balance Sheet Arrangements

We entered into an agreement with two banks that extended mortgage loans to our home buyers, where we agree to provide a certain limited guarantee, which covers the risk before the conveyance of title upon closing. Upon initiating the loan on behalf of the buyer for the down payment, the Bank has withheld a percentage ranging from 5% to 20% of the loan and deposited such funds into a segregated account in each bank. At June 30, 2010, the balance of this separate account was $738,351. Since the Company does not recognize revenue when its receivables are subject to future subordination, the entire amount that could become payable to the bank under the limited guarantee is recorded as a liability on the balance sheet and is included in customer deposits.

Item 3. QUALITATIVE AND QUANTITIVE DISCLOSURES ABOUT MARKET RISK

The Company is subject to the following market risks, including but not limit to:

General Real Estate Risk

(i) The real estate development industry in general, and the residential luxury real estate development industry in particular, is a high risk industry, subject to changes in general economic conditions, fluctuating interest rates, and changing demand for the types of developments being considered. Volatility in local and regional land use demands, as well as changing supply and demand for the specific uses for which the real property is being developed, are also factors in assessing the relative risks of the business. The demand for residential real estate development is particularly sensitive to changing interest rates and shifting demographics. Both of these factors affecting the demand for residential housing are highly unpredictable over both the short-and long-term. If market conditions change dramatically and unfavorably to us, we may go out of business.

(ii)We need permits, licenses or approvals from government authorities to begin our construction of the second phase project. If we fail to obtain all required licenses, permits, or approvals, our operations will be materially impaired.

(iii)Recent PRC regulations relating to cutting down luxury single family house constructions may limit our ability to implement our business plan. If no consents and approvals are obtained, we may have to cease our second phase of single luxury family house operations, and change our business plan to build apartment buildings.

Risk Relating to Property Sales

The Company may not be able to sell a property at a particular time for our full value, particularly in a poor market.

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Foreign Currency Exchange Rate Risk

The Company is doing all our business in P.R. China. All the revenue and profit is denominated in RMB. When RMB depreciates, it may adversely affect the company's financial performance.

Item 4T. CONTROLS AND PROCEDURES

(i) Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation and under the supervision of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(ii) Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Information: None.

Item 1A. Risk Factors :

Investing in shares of our common stock involves a high degree of risk. You should carefully consider the following risk factors, in addition to the other information set forth in this report, before you purchase these shares. The risks and uncertainties described below are those we have identified as material. If any of the events contemplated by the following discussion of risks should occur, our business, financial condition and results of operations may suffer. As a result, the trading price of our common stock could decline and you could lose part or all of your investment in our common stock.

Risks Related to Our Business

WE LACK AN OPERATING HISTORY UPON WHICH AN EVALUATION OF OUR FUTURE SUCCESS OR FAILURE CAN BE MADE.

We were incorporated in March 2002 as a blank check company for the purpose of seeking to complete a merger or business acquisition. We conducted virtually no business until January 30, 2005, when we acquired Bauer Invest Ltd. Bauer is a holding company, which conducts its business through its 80% owned subsidiary Beijing Dahua Real Estate Development, Ltd., a private company operating in the People's Republic of China (“Beijing Dahua Real Estate”). Dahua Real Estate was incorporated on September 24, 2001, to engage in the development and sale of luxury single-family houses in Beijing, China. The acquisition of Bauer was accounted for as a recapitalization, rather than a business combination. Accordingly, the historical operations of Bauer and its subsidiaries were represented as our historical operations. Our limited operating history makes it difficult for you to evaluate our business and future prospects.

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WE WILL NEED ADDITIONAL FINANCING TO CARRY OUT OUR SECOND PHASE PROJECT AND THE PROJECT IN ZHUOLU. IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING, WE MAY HAVE TO DELAY THE IMPLEMENTATION OF OUR PROJECTS, AND OUR ABILITY TO INCREASE REVENUE WILL BE MATERIALLY IMPAIRED.

Since inception, we have been dependent on short-term loans and customer deposits to meet our cash requirements. As of December 31, 2005 we completed the construction of our First Phase of Dahua Garden project consisting of 75 luxury single-family houses. Of 75 units, 67 houses were sold, 8 houses were reserved with clients’ deposits at June 30, 2010. We are currently applying with Beijing municipal and Changping district governmental agencies for the first-degree development right of the Second Phase of Dahua Garden. To date we have not received any licenses, permits or approvals from governmental authorities to commence our Second Phase construction. It is estimated that we need approximately $60.5 million in order to complete our Second Phase project. We are also in the process of construction of Xuanyuan Lakefront in Zhuolu county in Hebei province through our subsidiary Zhuolu Dahua Real Estate. It is estimated that we needed approximately $17.5 in order to complete the project. We intend to use (i) our proceeds from sales of our First Phase housing units (ii) customer deposits from our pre-sale of the housing units in the Second Phase and Xuanyuan Lakefront in Zhuolu,, and (iii) short-term borrowings from Dahua Group, our affiliate, to finance our projects. At present we do not have any arrangements for additional financing. If we are unable to obtain additional financing on terms acceptable to us, we may have to delay or curtail our Second Phase project, and our ability to increase revenue will be materially impaired.

IF WE RAISE ADDITIONAL CAPITAL THE VALUE OF YOUR INVESTMENT MAY DECREASE.

If we need to raise additional capital to implement or continue operations, we will likely issue additional equity or convertible debt securities. If we issue equity or convertible debt securities, the net tangible book value per share may decrease, the percentage ownership of our current stockholders may be diluted and such equity securities may have rights, preferences or privileges senior to or more advantageous than our common stockholders.

WE NEED PERMITS, LICENSES OR APPROVALS FROM GOVERNMENT AUTHORITIES TO BEGIN OUR CONSTRUCTION OF THE SECOND PHASE PROJECT. IF WE FAIL TO OBTAIN ALL REQUIRED LICENSES, PERMITS, OR APPROVALS, OUR OPERATION WILL BE MATERIALLY IMPAIRED

Before we can develop a property, we must obtain a variety of approvals from local and municipal governments with respect to such matters as zoning, density, subdivision, traffic considerations, site planning and environmental issues. Although there are currently no unfavorable rulings that would have a significant adverse effect on the development of our proposed Second Phase of Dahua Garden, there is no assurance that we will be able to obtain all required licenses, permits, or approvals from government authorities. If we fail to obtain all required licenses, permits, or approvals, our operation will be materially impaired.

RECENT PRC REGULATIONS RELATING TO CUTTING DOWN LUXURY SINGLE FAMILY HOUSE CONSTRUCTIONS MAY LIMIT OUR ABILITY TO IMPLEMENT OUR BUSINESS PLAN. IF NO CONSENTS AND APPROVALS ARE OBTAINED, WE MAY HAVE TO CEASE OUR SECOND PHASE OF SINGLE LUXURY FAMILY HOUSE OPERATIONS, AND CHANGE OUR BUSINESS PLAN TO BUILD APARTMENT BUILDINGS.

In August 2006, the Chinese government issued a series of rules and regulations in an attempt to push down rising house prices in China by cutting down luxury single family house constructions and supporting construction of apartment buildings. Under the government’s new policy, (i) no single family houses can be built, if the construction has not started, without special construction permits. All permits issued previously have to be re-reviewed and re-approved; and (2) the land previously acquired for luxury housing construction have to be revalued and sold to the people who offer the most money for the land. Because of those new government policies, we have incurred a long delay for obtaining the consents and approvals to commence our construction for the second phase of Dahua Garden. As of the date of this report, we don’t have any current plan or arrangements for development of apartment buildings.

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WE ACT AS GENERAL CONTRACTOR ON OUR CONSTRUCTION PROJECTS, AND IF ANY OF OUR SUBCONTRACTORS SHOULD FAIL TO COMPLETE THEIR JOBS ON TIME, OUR BUSINESS COULD BE DISRUPTED.

We act as general contractor on our construction projects. We hire unaffiliated subcontractors to do work for us. In the event that any of our subcontractors should fail to complete their jobs on time, our business could be disrupted, which will have an adverse effect on our results of operation and our financial condition.

WE DEPEND ON KEY PERSONNEL FOR THE SUCCESS OF OUR BUSINESS. OUR BUSINESS MAY BE SEVERELY DISRUPTED IF WE LOSE THE SERVICES OF OUR CEO OR FAIL TO SUCCESSFULLY RECRUIT QUALIFIED MANAGERIAL PERSONNEL HAVING EXPERIENCE IN BUSINESS.

Our success is heavily dependent upon the continued service of Yonglin Du, our chief executive officer. Mr. Du has valuable personal relationships with government agencies and executive officers in the industry. A good personal relationship is sometimes crucial for doing business in China. If Mr. Du is unable or unwilling to continue in his position, we may not be able to easily replace him. Loss of his services could delay our applications for construction permit and land acquisition, and our business may be severely disrupted. We do not maintain key-man insurance on the life of Mr. Du. In addition, in order to successfully implement and manage our business plan, we will be dependent upon, among other things, successfully recruiting qualified managerial personnel having experience in business. Competition for qualified individuals is intense. There can be no assurance that we will be able to retain existing employees or that we will be able to find, attract and retain qualified personnel on acceptable terms.

OUR OFFICERS AND DIRECTORS ARE SUBJECT TO CONFLICTS OF INTEREST, AND THERE IS A RISK THAT THEY MAY PLACE THEIR INTERESTS AHEAD OF YOURS.

We believe that our officers and directors will be subject to conflicts of interest. The conflicts arise from their relationships with our affiliate. Yonglin Du, our chief executive officer, also serves as president and a director of Dahua Project Management Group Co. Ltd. (“Dahua Group”), a Beijing Municipal Government licensed construction project supervising business entity. Hua Meng, our chief financial officer, and Qinna Zeng, our corporate secretary, are also employed by Dahua Group. They may have conflicts of interest in allocating time, services, and functions between us and Dahua Group, in which any of them are or may become involved. Mr. Du anticipates devoting a minimum of twenty to thirty-two hours per week of his business hours, and each of Ms. Meng and Ms. Zeng fifteen to twenty hours of their business hours to our business activities. If and when the business operations increase and a more extensive time commitment is needed, they are prepared to devote more time to our affairs, in the event that becomes necessary.

To ensure that potential conflicts of interest are avoided or declared to us and to comply with the requirements of the Sarbanes-Oxley Act of 2002, our Board of Directors, on January 30, 2005, adopted a Code of Business Conduct and Ethics, among other things, to reduce potential conflicts of interest. Conflicts of interest must, to the extent possible, be avoided, and any material transaction or relationship involving a potential conflict of interest must be reviewed and approved in advance by a majority of the board of directors, or, if required by law, a majority of disinterested stockholders. No personal loans will be made to executive officers and directors.

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All our transactions with affiliates have been and will be made on terms no less favorable to us than could have been obtained from unaffiliated third parties. Our policy is to require that a majority of board members approve all transactions between us and our officers, directors, principal stockholders and their affiliates.

WE HAVE NOT CARRIED PROPERTY OR CASUALTY INSURANCE. ANY BUSINESS

DISRUPTION, LITIGATION OR NATURAL DISASTER MIGHT RESULT IN SUBSTANTIAL COSTS AND DIVERSION OF RESOURCES.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products, and do not, to our knowledge, offer business liability insurance. As a result, we do not have any business liability insurance coverage for our operations. Any business property loss, natural disaster or litigation might result in substantial costs and diversion of resources.

OUR QUARTERLY OPERATING RESULTS, REVENUES AND EXPENSES MAY FLUCTUATE SIGNIFICANTLY, WHICH COULD HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF OUR COMMON STOCK.

Our operating results, revenues and expenses may fluctuate significantly from quarter to quarter due to a variety of factors including:

The timing, size and execution of sales contracts and home deliveries;

Lengthy and unpredictable sales cycles;

Changes in our operating expenses; and

Fluctuations in general economic conditions.

We believe that period-to-period comparisons of our results of operations are not a good indication of future performance. It is possible that our operating results will be below your expectations. In that event, the trading price of our common stock may fall.

MANY OF OUR COMPETITORS ARE SIGNIFICANTLY LARGER THAN WE ARE, AND THEY HAVE GREATER FINANCIAL RESOURCES AND HAVE MORE EXPERIENCED MANAGERS THAN WE DO.

We are a small company and have little market share in our target market. The market of residential housing development in Beijing, China, is highly competitive. We compete with numerous entities, many of which are significantly larger than we are, and have greater financial resources and have more experienced managers than we do. As a result, they may be able to respond more quickly to new or emerging house plans or construction materials and changes in customer demands or to devote greater resources to the development, promotion and sale of their products or services than we can. If we cannot compete effectively, we may never become profitable. Although no one of our competitors currently dominates or significantly influences the market, they could adversely affect us.

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THE RESIDENTIAL REAL ESTATE DEVELOPMENT INDUSTRY IS A HIGH RISK INDUSTRY. IF MARKET CONDITIONS CHANGE DRAMATICALLY UNFAVORABLY TO US, WE MAY GO OUT OF BUSINESS.

The real estate development industry in general, and the residential luxury real estate development industry in particular, is a high risk industry, subject to changes in general economic conditions, fluctuating interest rates, and changing demand for the types of developments being considered. Volatility in local and regional land use demands, as well as changing supply and demand for the specific uses for which the real property is being developed, are also factors in assessing the relative risks of the business. The demand for residential real estate development is particularly sensitive to changing interest rates and shifting demographics. Both of these factors affecting the demand for residential housing are highly unpredictable over both the short-and long-term. If market conditions change dramatically and unfavorably to us, we may go out of business.

Risks Related to Doing Business in China

POLITICAL AND ECONOMIC POLICIES IN CHINA COULD AFFECT OUR BUSINESS IN UNPREDICTABLE WAYS.

Substantially all of our assets are located in China and substantially all of our revenues are expected to derive from our operations in China. Therefore, our results of operations and prospects are subject, to a significant degree, to economic and political developments in China. The economy of China differs from the economies of most developed countries in many respects, including:

The extent of government involvement;

Level of development; and

Allocation of resources.

The economy of China has been in transition from a planned economy to a more market-oriented economy. Although in recent years the Chinese government has implemented measures emphasizing the utilization of market forces and the reduction of state ownership of productive assets, a substantial portion of productive assets in China is still owned by the Chinese government, which continues to play a significant role in regulating China's economic development, setting monetary policy and providing preferential treatment to particular industries or companies. Political and economic policies in China could affect our business in unpredictable ways. If there are any unfavorable changes in government policies, such as government control over capital expenditures, changes in monetary policy, or changes in planning and zoning policy, we may experience delays or other problems in obtaining government permits or licenses to start or complete our projects.

OUR ASSETS, OFFICERS AND DIRECTORS ARE LOCATED OUTSIDE OF THE U.S. IT IS DIFFICULT TO EFFECT SERVICE OF PROCESS AND ENFORCEMENT OF LEGAL JUDGMENTS UPON US AND OUR OFFICERS AND DIRECTORS.

Our assets, officers and directors are located in China. As a result, it may be difficult to effect service of process within the United States and enforce judgment of the US courts obtained against us and our executive officers and directors. Particularly, our shareholders may not be able to:

o Effect service of process within the United States on us or any of our executive officers and directors;

o Enforce judgments obtained in U.S. courts against us based upon the civil liability provisions of the U.S. federal securities laws;

o Enforce, in a court in China, judgments of U.S. courts based on the civil liability provisions of the U.S. federal securities laws; and

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o Bring an original action in a court in China to enforce liabilities against us or any of our executive officers and directors based upon the U.S. federal securities laws.

GOVERNMENT CONTROL OF CURRENCY CONVERSION MAY AFFECT OUR ABILITY TO PAY DIVIDENDS DECLARED, IF ANY, IN FOREIGN CURRENCIES.

It is expected that a substantial portion of our revenues, if any, will be in “yuan”, the national currency of China, which is currently not a freely convertible currency. A portion of our revenues may have to be converted into US dollars to make payment of dividends declared, if any, in respect of our common shares. Under China's existing foreign exchange regulations, we will be able to pay dividends in foreign currencies without prior approval from the State Administration of Foreign Exchange of China by complying with certain procedural requirements. However, the Chinese government may take measures at its discretion in the future to restrict access to foreign currencies if foreign currencies become scarce in China. We may not be able to pay dividends in foreign currencies to our shareholders if the Chinese government restricts access to foreign currencies for current account transactions.

FLUCTUATIONS IN THE EXCHANGE RATE BETWEEN THE CHINESE CURRENCY AND THE UNITED STATES DOLLAR MAY BRING DOWN OUR OPERATING INCOME.

The functional currency of our operations in China is "Yuan." Results of our operations are translated at average exchange rates into United States dollars for purposes of reporting results. As a result, fluctuations in exchange rates may adversely affect our expenses and results of operations as well as the value of our assets and liabilities. On July 21, 2005, the Chinese government changed its decade-old policy of pegging the value of yuan to the U.S. dollar. Under the new policy, Yuan is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in an approximately17.6% appreciation of the yuan against the U.S. dollar between July 21, 2005 and June 30, 2010. Our revenues and costs are denominated in yuan, and our financial assets are also denominated in yuan. Any significant fluctuations in the exchange rate between the yuan and the United States dollar may bring down our operating income and lower our stock price. We have no current plans to undertake any hedging activity to minimize exchange rate fluctuations.

Risks Related to Investment in Our Securities

OUR COMMON STOCK IS QUOTED ON THE OVER-THE-COUNTER BULLETIN BOARD WHICH MAY MAKE IT MORE DIFFICULT FOR STOCKHOLDERS TO SELL THEIR SHARES AND MAY CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECREASE.

Because our common stock is quoted on the OTC Bulletin Board, the liquidity of our common stock is impaired, not only in the number of shares that are bought and sold, but also through delays in the timing of transactions, and limited coverage by security analysts and the news media of us. As a result, prices for shares of our common stock may be lower than might otherwise prevail if our common stock was traded on NASDAQ or a national securities exchange, like the American Stock Exchange.

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THERE HAS BEEN LOW VOLUME AND THEREFORE AN INACTIVE MARKET FOR OUR COMMON STOCK, OUR STOCK PRICE MAY BE VOLATILE OR MAY DECLINE REGARDLESS OF OUR OPERATING PERFORMANCE, AND YOU MAY NOT BE ABLE TO RESELL YOUR SHARES AT OR ABOVE YOUR STOCK PURCHASE PRICE.

If you purchase shares of our common stock, you may not be able to resell those shares at or above your original purchase price. An active or liquid market in our common stock may not develop or, if it does develop, it may not be sustainable. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control.

OUR COMMON STOCK IS DEEMED A PENNY STOCK. AS A RESULT, TRADING OF OUR SHARES IS SUBJECT TO SPECIAL REQUIREMENTS THAT COULD IMPEDE OUR SHAREHOLDERS' ABILITY TO RESELL THEIR SHARES.

The shares in the Form 10Q constitute penny stock under the Securities Exchange Act of 1934 (the “Exchange Act”). The shares will remain penny stock for the foreseeable future. As defined in Rule 3a51-1 of the Exchange Act, penny stocks generally are equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system.

Section 15(g) of the Exchange Act and Rule 15g-2 of the Exchange Act require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor's account. Moreover, Rule 15g-9 of the Exchange Act requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to:

o Obtain from the investor information concerning his or her financial situation, investment experience and investment objectives;

o Reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has significant knowledge and experience to be reasonably capable of evaluating the risks of penny stock transactions;

o Provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and

o Receive a signed and dated copy of such statement from such investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives.

Compliance with these requirements may make it more difficult for investors in our common stock to resell the shares to third parties or to otherwise dispose of them.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds: None

Item 3. Defaults Upon Senior Securities: None.

Item 4. (Removed and Reserved)

Item 5. Other Information: None.

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Item 6. Exhibits and Reports On Form 8-K.

(a) Exhibits

Exhibit No.		Description
31.1		Section 302 Certification of CEO
31.2		Section 302 Certification of CFO
32.1		Section 906 Certification of CEO
32.2		Section 906 Certification of CFO

(b) Reports on Form 8-K: None.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

DAHUA, INC.

By:		By:
Yonglin Du, Chief Executive Officer and President		Meng Hua, Chief Financial Officer

August 15, 2010		August 15, 2010

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DAHUA INC 10-Q