February 12, 2010 convertible note finance
Gross proceeds $ 4,140,000
Less cash fee paid to placement agent 730,187
Net proceeds $ 3,409,813

Record warrant as derivative liability $ 1,052,000
Allocated remaining proceeds to :
Common stock issued to placement agents 657,556
Convertible Note 1,700,257
$ 3,409,813

Convertible notes payable, net of discount, at the transaction date was $1,700,257.

As of March 31, 2011, after a note discount amortization of $2,287,197, net convertible notes payable was accreted to $3,887,453.

13. ~~Receivable from Related Party:~~Accounting for Warrants

~~As of June 30, 2010, receivable from related party~~In conjunction with issuing the convertible notes, the Company agreed to issue common stock warrants to the convertible note investors in the ~~amount~~debt financing transaction described in note 12. The warrants issued have the following material terms:

The warrants are exercisable at any time during a five-year period commencing on the closing of ~~$1,111 was an advance~~a “financing,” which means the first sale (or series of related sales) by us of stock (or debt or equity securities convertible into stock), in a capital raising transaction, occurring after the maturity date (or the date the notes become due pursuant to ~~shareholders for travel related expenses occurring in normal course~~a default, if earlier) with aggregate gross proceeds of ~~business.~~at least $20,000,000. The warrants cannot be exercised if no financing is consummated within a five-year period after the issue date and become void if the notes automatically convert into common stock.

~~14. Subsequent Events~~Number of Shares: The warrants represent the right to purchase 8% of the total shares of common stock outstanding (on a fully-diluted basis) immediately after the closing of the financing.

~~On July 26, 2010,~~Exercise Price: The warrants are exercisable at the price for which the shares of common stock (or common stock equivalent if derivative securities are sold) are sold in the financing. If the financing includes more than one type of security, the exercise price shall equal the lowest price per share of common stock or common stock equivalent included in the financing.

At the time of the notes issuance, the Company ~~repaid outstanding term loan~~also issued non-conversion warrants to the placement agent to purchase 5% of the Company’s common stock underlying the warrants issued to the convertible notes investors, exercisable at the same price at which the investors’ warrants become exercisable.

The Company analyzed the warrants issued in ~~amount of $2,927,961 (20,000,000 in RMB) to Agricultural Bank of China, Foshan Branch. On July 27, 2010, the Company entered into an agreement~~connection with the ~~same branch office~~issuance of the notes and the conversion features embedded in the notes to ~~borrow $2,927,961 (20,000,000~~assess whether they meet the definition of a derivative under the guidance set forth by FASB ASC 815 (SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”) and, thereof, the applicability of the accounting rules in ~~RMB) with a term of 5 months. Interest on~~accordance to FASB ASC 815 to treat the ~~new loan is payable on monthly basis at rates ranging from 5.85% to 7.75% per annum.~~conversion option and the warrants as derivative liabilities.

~~On August 4, 2010,~~Under FASB ASC 815-10-15, a financial instrument is a derivative if it meets one of the ~~Company appointed Eric Gan as Chief Financial Officer. The compensation package included an annual salary~~following three criteria: i) it requires or permits net settlement; ii) there is a market mechanism for the net settlement; and iii) the net settlement can be fulfilled by delivery of ~~$120,000~~assets that are readily convertible to cash. Management concluded that the conversion option embedded in the notes does not meet the above criteria and ~~grant~~therefore is not a derivative.

Since the warrants permit the holder to perform a cashless exercise and receive a net number of ~~non-statutory stock options to acquire 400,000~~ shares of the Company’s common stock at the time of exercise, these warrants meet the definition of derivative instrument under ASC 815-10-15-83.

Management also evaluated whether the warrants meet the scope exception set forth by FASB ASC 815-40 (“Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”), which is that contracts issued or held by the reporting entity that are both (1) indexed to its own stock and (2) classified in stockholders’ equity shall not be considered to be derivative instruments for purposes of FASB ASC 815. The provisions in FASB ASC 815-40 apply to any freestanding financial instruments or embedded features that have the characteristics of a derivative, as defined by FASB ASC 815 and to any freestanding financial instruments that are potentially settled in an entity’s own common stock. Because the exercise price of the warrants is not fixed and will be determined by the price at which the Company completes a Financing prior to the time the warrants become exercisable, the warrants are not considered indexed to the Company’s common stock. The exceptions provided under FASB ASC 815-40-15 are not available; therefore, management determined the warrants should be accounted for as a derivative liability. The terms of the placement agent non-conversion warrants have terms identical to the investors’ warrants and are therefore accounted as a derivative liability.

Derivative instruments are initially measured and recorded at their fair value and marked-to-market at each report date until they are exercised or expire, with any change in the fair value charged or credited to income.

As a result of adopting accounting treatment according to ASC 815-40, investor and placement agent warrants are recorded as derivative liabilities and valued at $1,052,000 using a binomial option pricing model on the date of issuance. Because there was no trade market for the Company’s stock, management used substitute volatility in the initial and subsequent measuring of the fair market value of the warrants issued. Management re-measured the fair market value based on the adjusted volatility of publicly traded stock of three companies with business and financial size comparable to the Company’s and the remaining term of the warrants.

As of March 31, 2011, these warrants were re-valued at $592,276 based on revaluation of factors including the probability of the these warrants to be voided, the probability of the warrants to be in-the-money, changes in expected volatility, and the remaining life of these warrants. The revaluation inputs are provided in the table as follows:

	As of
	March 31,
Attribute	2011
Warrants Outstanding		1,670,823	(*)
Stock Market Price	$	6
Exercise Price	$	6
Risk-free Interest Rate, Year 1		0.3	%
Risk-free Interest Rate, Year 2		0.8	%
Risk-free Interest Rate, Year 3		1.29	%
Risk-free Interest Rate, Year 4		2.4	%
Estimated Volatility		72	%
Expected Dividend Yield		0	%
Options Life (years)		3.87

(*) Warrants outstanding as of March 31, 2011 is based on 8% of the total outstanding common shares on fully diluted basis and warrants issued to placement agent equal to 5% of investors’ warrants :

Shares of common stock outstanding as of March 31, 2011	15,265,714
Shares of common stock to be issued in the public offerings	4,166,667
Anti-dilutive shares to be issued to placement agent	458,373
Total	19,890,754

8% of the fully-diluted shares outstanding immediately after IPO	8	%

Shares underlying the warrants	1,591,260

Placement agent’s non-conversion warrants (5% of investors’ warrants)	79,563

	1,670,823

14. Equity and stock option based compensation

2010 Stock Incentive Plan

In September 2010, the Board of Directors adopted the 2010 Stock Incentive Plan (“2010 Plan”) under which it may grant incentive and nonqualified stock options, restricted stock and stock appreciation rights to eligible employees, non-employee directors, or consultants. Stock options granted generally have a 5-year life and vest pursuant to terms set forth under employment agreement. Under the 2010 Plan, stock options of 400,000 were granted with exercise price equal to the Company’s intended initial public offering price and will be vested over a three year period. The vesting period starts at August 1, 2010 under the compensation terms of the employment contract.

The Company accounts for stock-based compensation under provisions of FASB ASC 718 – Accounting for Stock Compensation which establishes standards for the accounting for equity instruments exchanged for employee services. Under the provisions of FASB ASC 718, share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant), net of estimated forfeitures.

The fair value of the employee stock options granted is estimated using a binomial pricing model at the grant date with input as follows:

	As of
	September 10,
Attribute	2010
Stock Market Price	$	6
Exercise Price	$	6
Risk-free Interest Rate		0.27	%
Estimated Volatility		75	%
Expected Dividend Yield		0
Options Life (years)		4.8

Total cost of the share-based compensation from the grant of the stock options was initially estimated at $1,351,000 at the grant date based on the valuation of the options. The cost is recognized on the number of shares vested over the vesting period.

The following table summarizes the activities for the 2010 Plan for the three month period ended March 31, 2011:

	Number				Remaining
	of Shares		Exercise Price		Contractual Life
Options outstanding as of September 30, 2010		400,000	$	6		4.8
Granted		-
Forfeiture		-
As of March 31, 2011		400,000	$	6		4.3
Requisite Service Periods Lapsed (months)		8
Vested and exercisable as of March 31, 2011		106,521	$	6		4.3

In addition, one of our independent directors was granted 30,000 shares of restricted common stock under the Company’s 2010 Plan, of which 20,000 shares vest over a period of two years. At the grant date, the fair value of these restricted shares issued was measured at estimated $6 per share. As of March 31, 2011, shares of 17,507 were not subject to forfeiture, of which 4,986 and 2,466 shares were recognized as shared-based compensation expense at an estimated fair market value of $6 per share for the six months and three ~~years.~~months ended March 31, 2011.

Total stock-based expense was recorded for the six months and six months ended March 31, 2011 as follows:

	Three months ended		Six months ended
	March 31, 2011		March 31,2011
Vested options	$	136,206	$	320,480
Restricted stock	$	14,796	$	29,918
	$	151,002	$	350,398

15. Earnings ~~per~~Per Share

Basic earnings per share is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated by dividing net income attributable to common shareholders as adjusted for the effect of dilutive common equivalent shares, if any, by the weighted average number of common and dilutive common equivalent shares outstanding during the year. Common equivalent shares consist of the common shares issuable upon the conversion of the convertible note (using the if-converted method) and common shares issuable upon the exercise of outstanding warrants (using the treasury stock method). Diluted EPS excludes all dilutive potential shares if their effect is ~~anti dilutive.~~

anti-dilutive. Using if-converted method, the Company’s earnings per share for the three months and six months ended March 31, 2011 is anti-dilutive.

	Three Months Ended					Six Months Ended
	March 31,			March 31,		March 31,			March 31,
	2011			2010		2011			2010
Net Income (Loss)
(numerator for basic net income (loss) per share)	$	(372,108	)	$	444,332	$	(314,745	)	$	1,739,680
Plus interest on convertible note		196,822			356,700		1,009,275			356,700
Net Income (loss) - assumed conversions
(numerator for diluted net income (loss) per share)	$	(175,286	)	$	801,032	$	694,530		$	2,096,380

Weighted average common shares
(denominator for basic net income (loss) per share)		15,265,714			14,897,143		15,265,714			14,701,547

Effect of dilutive securities:
Warrants - treasury stock method		-			-		-			-
Convertible notes as if-converted method		1,923,809			901,224		1,923,809			445,661
Weighted average common shares
(denominator for diluted income (loss) per share)		17,189,523			15,798,367		17,189,523			15,147,208

Basic net income (loss) per share	$	(0.02	)	$	0.03	$	(0.02	)	$	0.12
Diluted net income (loss) per share are the same as basic net income (loss) per share as results would be anti-dilutive	$	(0.02	)	$	0.03	$	(0.02	)	$	0.12

For the three months ended
June 30, 2010 June 30, 2009
Net Income
(numerator for basic income per share) $ 429,768 $ 357,462
Plus interest on convertible note 697,811 -
Net Income - assumed conversions
(numerator for diluted income per share) $ 1,127,579 $ 357,462

Weighted average common shares
(denominator for basic income per share) 15,245,604 14,510,204

Effect of Dilutive Securities:
Warrants - treasury stock method - -
Convertible note as if-converted method 1,971,429 -
Weighted average common shares
(denominator for diluted income per share) 17,217,033 14,510,204

Basic net income per share $ 0.03 $ 0.02
Diluted net income per share $ 0.07 Antidilutive $ 0.02

For the nine months ended
June 30, 2010 June 30, 2009
Net Income
(numerator for basic income per share) $ 2,169,448 $ 1,089,208
Plus interest on convertible note 1,114,535 -
Net Income - assumed conversions
(numerator for diluted income per share) $ 3,283,983 $ 1,089,208

Weighted average common shares
(denominator for basic income per share) 14,879,603 14,510,204

Effect of Dilutive Securities:
Warrants - treasury stock method - -
Convertible note as if-converted method 1,007,064 -
Weighted average common shares
(denominator for diluted income per share) 15,886,667 14,510,204

Basic net income per share $ 0.15 $ 0.08
Diluted net income per share $ 0.21 Antidilutive $ 0.08

~~16. Accounting for Warrants~~

~~The warrants issued in conjunction with the convertible notes have the following material terms:~~

The warrants are exercisable at any time during a five-year period commencing on the closing of a “financing,” which means the first sale (or series of related sales) by us of stock (or debt or equity securities convertible into stock), in a capital raising transaction, occurring after the maturity date (or the date the notes become due pursuant to a default, if earlier) with aggregate gross proceeds of at least $2,000,000. The warrants can not be exercised if no financing is consummated within five-year period after the issue date and become void if the notes automatically convert into common stock.

~~Number of Shares: The warrants represent the right to purchase 8% of the total shares of common stock outstanding (on a fully-diluted basis) immediately after the closing of the financing.~~

~~Exercise Price~~: The warrants are exercisable at the price for which the shares of common stock (or common stock equivalent if derivative securities are sold) are sold in the financing. If the financing includes more than one type of security, the exercise price shall equal the lowest price per share of common stock or common stock equivalent included in the financing.

The Company analyzed the warrants and the conversion features in the notes to assess whether they meet the definition of a derivative under the guidance set forth by ASC Topic 815 (SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”) and, thereof, the applicability of the accounting rules in accordance to ASC Topic 815 to treat the warrants as derivative liabilities. Management also evaluated whether the warrants meet the scope exception set forth by ASC Topic 815-40 (“Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”), which is that contracts issued or held by the reporting entity that are both (1) indexed to its own stock and (2) classified in stockholders’ equity shall not be considered to be derivative instruments for purposes of ASC Topic 815. The provisions in ASC Topic 815-40 apply to any freestanding financial instruments or embedded features that have the characteristics of a derivative, as defined by ASC Topic 815 and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.

Management concluded that the warrants issued in conjunction with the private placement of convertible notes in February 2010 to certain accredited investors should be treated as a derivative liability. Derivative instruments are recorded at fair value and marked-to-market each period until they are exercised or expire, with any change in the fair value charged or credited to income each period.

As a result of adopting accounting treatment of ASC Topic 815-40, warrants are recorded as derivative liabilities and valued at $1,052,000 based on 1,218,857 shares using the Black-Scholes pricing model on the date of issuance and as of March 31, 2010. Because there was no trade market for the Company’s stock, management used substitute volatility in the initial and subsequent measuring of the fair market value of the warrants issued. Management re-measured the fair market value based on the adjusted volatility of publicly traded stock of a company with similar business and the remaining term of the warrants. As of June 30, 2010, these warrants were valued at$690,000. The valuation inputs are provided in the table as follows.

At date of issuance As of
Attribute February 12, 2010 June 30, 2010

Warrants outstanding 1,218,857 (*) 1,218,857 (*)
Exercise Price $ 2.45 $ 2.45
Risk Free Interest Rate 2.25 % 0.32 %
Volatility 90 % 70 %
Dividend Yield 0 % 0 %
Contractual Life (years) 1 0.7

~~(*) Warrants outstanding is based on 8% of the total outstanding common shares~~

~~17.~~ 16 . Income Taxes

USA

The Company and its subsidiary and branch divisions are subject to income taxes on an entity basis on income arising in, or derived, from the tax jurisdiction in which they operate. As the Company had no income generated in the United States, there was no tax expense or tax liability due to the Internal Revenue Service of the United States as of ~~June 30, 2010~~March 31, 2011 and September 30, ~~2009.~~2010.

BVI

Hong Hui is incorporated under the International Business Companies Act of the British Virgin Islands and accordingly, is exempted from payment of British Virgin Island’s income taxes.

PRC

Pursuant to the PRC Income Tax Laws, the prevailing statutory rate of enterprise income tax is 25% for Foshan. For 2008 and 2009, Foshan ~~enjoys~~enjoyed a tax free holiday for two years. From January 2010 onwards, Foshan is taxed at 25% of net income except for the year 2010 and ~~2011years where~~2011 during which there is a 50% discount on income tax.

The ~~current year~~ tax provision was ~~$6,328~~$3,398 and ~~$6,328~~$92,001 for the three months and ~~nine~~six months ended ~~June 30, 2010, respectively.~~March 31, 2011, respectively, and $0 for the same periods ended March 31, 2010. The Company has recorded zero deferred tax assets or liabilities as of ~~June 30,~~March 31, 2011 and March 31, 2010, ~~and September 30, 2009~~ net of tax allowance, because all other significant ~~difference~~differences in tax basis and financial statement amounts are permanent differences.

For the three months
ended

For the nine months
ended

June 30, June 30,
2010 2009 2010 2009

Income Tax Expense:

Current tax $ 6,328 $ 0 $ 6,328 $ 0
Change in deferred tax assets – Net operating loss 46,911 76,959 285,019 199,513

Change in valuation allowance (46,911 ) (76,959 ) (285,019 ) (199,513 )

Total $ 6,328 $ 0 $ 6,328 $ 0

We follow the guidance in FASB ASC 740 Accounting for Uncertainty in Income Taxes . We have not taken any uncertain tax positions on any of our open income tax returns filed through the period ended ~~June 30, 2010.~~March 31, 2011. Our methods of accounting are based on established income tax principles and are properly calculated and reflected within our income tax returns. In addition, we have timely filed extension of income tax returns in all applicable jurisdictions in which we believe we are required to make an income tax return filing.

We re-assess the validity of our conclusions regarding uncertain tax positions on a quarterly basis to determine if facts or circumstances have arisen that might cause us to change our judgment regarding the likelihood of a tax position’s sustainability under audit. We have determined that there were no uncertain tax positions for the ~~nine~~three months ended ~~June 30, 2010~~March 31, 2011 and ~~2009.~~2010.

All of the Company’s income before income taxes is from PRC sources. Actual income tax expense reported in the consolidated statements of operations and comprehensive income differ from the amounts computed by applying the PRC statutory income tax rate of 12.5% (50% discount of 25%) to income before income taxes for the three months and ~~nine~~six months ended ~~June 30, 2010~~March 31, 2011 for the followings reasons:

	Three Months					Six Months
	Ended March 31,					Ended March 31,
	2011			2010		2011			2010
Income (loss) before income taxes	$	(368,710	)		444,332	$	(222,744	)		1,739,680
Temporary difference:
Write-off for bad debt					-		(7,372	)		-
Permanent difference:
Undeductible interest expense		152,547			-		762,447			-
Undeductible expense from valuation adjustment for warrants		44,276			-		(146,724	)		-
Undeductible stock-based compensation		199,069			-		350,398			-
Adjusted taxable income	$	27,182			-	$	736,005			-
Income tax rate at 12.5% and zero in 2010 and 2009		12.5	%		-		12.5	%		-
Income tax expense	$	3,398			-	$	92,001			-

For the three months
ended

For the nine months
ended

June 30, June 30,
2010 2009 2010 2009

Income before income taxes $ 436,096 $ 357,462 $ 2,175,776 $ 1,089,208

Computed “expected” income tax expense at 12.5% and zero in 2010 and 2009 $ 142,363 $ - $ 411,914 $ -
Tax effect of net taxable permanent differences (89,124 ) - (120,567 ) -

Effect of cumulative tax losses (46,911 ) - (285,019 ) -

$ 6,328 $ - $ 6,328 $ -

Our policy for recording interest and penalties associated with audits is to record such items as a component of income tax expense. There were no interest and penalties recorded for the ~~nine~~three months ended ~~June 30, 2010~~March 31, 2011 and ~~2009.~~2010.

17. Recent accounting pronouncements

Recently, the following accounting standards or amendments to existing standards have been issued and communicated through the following FASB Accounting Standards Updates (ASU):

ASU No. 2011-03 - Transfers and Servicing (ASC Topic 860): Reconsideration of Effective Control for Repurchase Agreements.

ASU No. 2011-02 - Receivables (ASC Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.

ASU No. 2011-01 – Receivables (ASC Topic 310): Deferral of the Effective Date of Disclosure about Troubled

Debt Restructurings in Update No. 2010-20.

ASU No. 2010-29 - Business Combinations (ASC Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations.

ASU No. 2010-28 - Intangibles—Goodwill and Other (ASC Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.

ASU No. 2010-26 - Financial Services—Insurance (ASC Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts.

After evaluation of the above standards, management concluded they are not applicable to the Company’s financial accounting and reporting, and, if adopted, there would be no significant effect on the Company’s financial statements.

18. ~~Accounting for stock-based compensation~~Subsequent Events

~~The Company accounts for stock-based compensation under ASC 718 - Stock Compensation which establishes standards for~~We have evaluated subsequent events from the ~~accounting for equity instruments exchanged for employee services. Under~~balance sheet date up to when the provisions of ASC 718, share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as an expense over the employee's requisite service period (generally the vesting period of the equity grant), net of estimated forfeitures. In May 2010, pursuant to the company’s 2010 stock incentive plan, 30,000 shares of restricted common stock were granted to an independent director with a vesting period of three years. Vested portion is recognized in the restated financial ~~statements.~~

~~19. Recent Accounting Pronouncements~~

~~Fair Value Measurements~~statements are issued.

In ~~January 2010,~~April 2011, the ~~FASB issued guidance~~Company completed its capital project to ~~amend~~build a new manufacturing facility to make Polypheneyplene Sulfide (PPS) non-woven fabrics directly from PPS resin using spun-bonded and needle-punched method. This facility can make filament (long fiber) non-woven PPS fabrics 2.6 meter wide with an annual capacity of 1,200 tons. Addition of this production line marks a milestone to the ~~disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires disclosure~~Company as the sale of transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy, including the reasons and the timing of the transfers and information on purchases, sales, issuance, and settlements onPPS products will have a gross basis in the reconciliation of the assets and liabilities measured under Level 3 of the fair value measurement hierarchy. The guidance is effective for annual and interim reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual and interim periods beginning after December 15, 2010. The Company adopted this guidance at January 1, 2010, except for the Level 3 reconciliation disclosuressignificant impact on the ~~roll-forward activities, which it will adopt at the beginning of January 1, 2011. Adoption did not have a material impact on our consolidated financial statements.~~Company’s revenue growth and profitability.

~~Receivables~~

~~In April 2010, the FASB issued ASU 2010-18,~~ ~~Receivables (Topic 310), Effect of a Loan Modification When the Loan is Part of A Pool That Is Accounted for as a Single Asset~~ . ASU 2010-18 provides that modifications of loans that are accounted for within a pool under Subtopic 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loans are included is impaired if expected cash flows for the pool change. This guidance is effective prospectively for the first interim and annual period ending on or after July 15, 2010. Early adoption is permitted. The Company adopted this guidance without a material impact on its consolidated financial statements.

~~Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.~~

~~20. Restatements of Previously Issued Financial Statements~~

Subsequent to the issuance of our consolidated financial statements for the three and nine months ended June 30, 2010, included in our Quarterly Report on Form 10-Q for the period ended June 30, 2010, filed with the United States Securities and Exchange Commission on August 16 2010, and in connection with the SEC’s review of our registration statement on Form S-1 (File No. 333-168028), originally filed on July 8, 2010, as amended on September 7, 2010 and October 15, 2010, it was identified that (i) we failed to record a liability of $75,000 owed to each of United Best and Primary Capital (totaling $150,000) for advisory services rendered in connection with our private placement of convertible notes which closed on February 12, 2010, and (ii) we failed to record a grant of 30,000 shares of common stock in June 2010 to a director of the Company.

Accordingly, we have revised the previously issued consolidated financial statements to include the unpaid $150,000 advisory service fees and $5,000 as stock-based compensation expense in our consolidated balance sheet, consolidated statements of operations, consolidated statement of changes in stockholders’ equity and consolidated statements of cash flows for the periods affected. The following tables highlight changes to specific accounts affected:

As reported As restated
June 30, 2010 June 30, 2010

Accounts payable and accrued liabilities $ 696,703 $ 846,703
Total Current Liabilities $ 7,845,182 $ 7,995,182
Common stock, $0.001 par value $ 15,236 $ 15,266
Additional paid-in capital $ 8,205,582 $ 8,210,552
Retained earnings $ 6,824,980 $ 6,669,980
Total Stockholders’ equity $ 16,728,172 $ 16,578,172

A restatement of the consolidated statements of operations and comprehensive income affected the three month and nine month periods ended June 30, 2010 in general and administrative expenses as follows:

Three months ended Nine months ended
30-Jun-10 30-Jun-10
As reported As restated As reported As restated
Selling, General and Administrative Expenses $ 701,436 $ 706,436 $ 1,363,574 $ 1,518,574
Income from Operations $ 833,784 $ 828,784 $ 3,174,838 $ 3,019,838
Income before Income Taxes $ 441,096 $ 436,096 $ 2,330,776 $ 2,175,776
Net Income $ 434,768 $ 429,768 $ 2,324,448 $ 2,169,448
Earings per share – basic and diluted $ 0.03 $ 0.03 $ 0.15 $ 0.15
Weighted-average Common Stock Shares Outstanding
Basic 15,235,714 15,245,604 14,879,603 14,879,603
Diluted 16,925,510 17,217,033 15,739,975 15,886,667

~~Statements of Cash Flows for the nine months ended June 30, 2010 are restated under net income and accounts payable and accrued liabilities as follows:~~

As reported As restated
June 30, 2010 June 30, 2010

Net income $ 2,324,448 $ 2,169,448
Stock based Compensation $ 0 $ 5,000
Accounts payable and accrued liabilities $ 282,009 $ 432,009

~~The net cash provided by the operating activities, the net cash used in investing activities, and the net cash provided by financing activities are not affected by the restatements.~~

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Special Note Regarding Forward-Looking Statements

This report contains some forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements give our current expectations or forecasts of future events. Forward-looking statements involve risks and uncertainties. You can identify these statements by the fact that they do not relate strictly to historical or current facts. In some cases they are identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. These statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In particular, these include statements relating to future actions, future performance, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results.

Any or all of our forward-looking statements in this report may turn out to be inaccurate. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially as a result of various factors, including, without limitation, the risks outlined under "Risk Factors" in our registration statement of Form S-1 (File No. 333-168028), originally filed on July 8, 2010, as amended on September 7, 2010 and October 15, 2010 (the “S-1”). In light of these risks and uncertainties, therefactors. There can be no assurance that the forward-looking statements contained in this filing will in fact occur and you should not place undue reliance on these forward-looking statements.

Introduction

This section discusses and analyzes the results of operations and financial condition of China SLP Filtration Technology, Inc., formerly known as Perpetual Technologies, Inc., (“we,” “us,” or the “Company”) which is the ultimate parent company of Foshan S.L.P. Special Materials Co., Ltd. (“Foshan”), a China-based operating company located in Foshan, Guangdong Province in the People’s Republic of China.

On February 12, 2010, we acquired control of Foshan in a share exchange transaction which closed on that date.

In the share exchange or “reverse merger” we acquired control of Hong Hui Holdings Limited (“Hong Hui”), a British Virgin Islands company and the owner of all of the stock of Technic International Limited (“Technic”), a Hong Kong holding company which in turn is the owner of all of the equity of Foshan, by issuing to the Hong Hui stockholders an aggregate of 14,510,204 shares of our common stock in exchange for all of the outstanding capital stock of Hong Hui.

The transaction is accounted for as a reverse acquisition, except that no goodwill or other intangible has been recorded. The recapitalization is considered to be a capital transaction in substance, rather than a business combination. Beginning from February 12, 2010, the operating results of Foshan are consolidated in the Company’s financial results for that period.

Foshan is engaged in the manufacture and sale of nonwovens.

Nonwoven fabrics are broadly defined as sheet or web structures bonded together by entangling fiber or filaments (and by perforating films) mechanically, thermally or chemically. They are flat, porous sheets that are made directly from separate fibers or from molten plastic or plastic film. They are not made by weaving or knitting and do not require converting the fibers to yarn.

Our major market is the Chinese market. We sell products to industrial customers in China. In recent years, our products have been successfully launched in the European, North American and South East Asian markets.

Currently, our major products are spun-bond, thermal calendaring and needle-punched industrial non-woven PET (polyester) and PPS (polypropylene) fabrics. These products are used as filtration media and infrastructure engineering material, among other uses.

We currently operate three spun-bond production lines. Two lines are spun-bond, thermal calendaring production lines with a total annual capacity of 4,000 tons of spun-bond polyester filament thermal calendaring non-woven. In February 2009, we added the third line, spun-bond needle-punching production line with an annual capacity of 4,000 tons of spun-bond polyester filament, needle-punched non-woven fabric.

We recently developed a continuous filament, spun-bond, needle-punched manufacturing process to manufacture polyphenylene sulfide fiber, or PPS, a specialized type of high temperature resistant non-woven fabric and intend to begin commercial production of PPS using our proprietary manufacturing process in 2011.

We have applied for a process patent in the PRC for this process (Patent No. PRC: 201010102660.2) and we intend to apply for a process patent in North America and Europe. In comparison to other filtration materials currently available, we believe that our non-woven fabric will be stronger, have lower production and operating costs, and will have higher filtration efficiency. Although our PPS product has been tested in laboratories, prototype bag filters made of our product have not been tested on site by any potential end user and we do not expect to develop prototype products for testing by any potential end user prior to commencing commercial production of PPS products. Our new PPS nonwoven fabric may never achieve broad market acceptance, due to any number of factors, including that the product may not be as effective as our initial testing indicates and competitive material may be introduced which renders our PPS product too expensive or obsolete.

On March 24, 2010, the Company effected a 1 for 5 reverse stock split of its outstanding common stock. The effect of the reverse split is retrospectively ~~showed~~shown in all periods presented.

~~Overview~~On February 12, 2010, immediately following the reverse merger, the Company entered into a note purchase agreement with certain accredited investors for the sale of convertible notes in the aggregate principal amount of $4,140,000 and warrants (which are exercisable only in certain circumstances), with net proceeds of $3.4 million after finance costs. The notes require quarterly interest payments at a rate of 10% per annum.

~~This section discusses and analyses our results of operations and financial condition, including the results and condition~~Recent Development

On January 31, 2011, we entered into note extension agreements with each holder of our ~~operating company, Foshan, which have been consolidated with our own results~~outstanding convertible notes (except for all periods presented. This discussion is intended to help you understand our financial results and the current facts and trends that may cause them to change, so that you may make informed judgments about our likely financial resultsLumen Capital LP who holds a convertible note in the ~~future and, insofar as those results may affect our stock price and informed investment decisions.~~

~~General~~

principal amount of $100,000) to extend the maturity date of the notes from February 12, 2011 to June 30, 2011. We ~~are a PRC based manufacturer~~repaid Lumen Capital the principal amount of nonwoven fabrics. We currently manufacture two types of PET nonwoven fabrics which are used in a wide range of products, including filtration products, road construction materials, home furnishings, automobile interior insulation and industrial packaging.

Our current PET products are sold primarily to PRC-based manufacturers which use our products as raw material components for end-products they sell to their customers. We recently developed a manufacturing process to manufacture polyphenylene-sulfide fiber, or PPS nonwoven fabric, which is the key product line around which our long-term growth strategy is centered.

~~Based~~$100,000 on lab tests which we conducted internally we believe that our PPS nonwoven fabric is superior to other currently available high temperature filtration material because it is lighter, thicker, stronger, has higher air permeability and filtration efficiency and significantly cheaper to produce. Due to the superior characteristics of our PPS product coupled with the demand created by these new regulations, we believe that our PPS material will become a market leader for high temperature filtration applications. We expect to sell our PPS nonwoven products to operators of coal fired power plants, garbage incinerators and other heavy industrial plants.
February 11, 2011.

We intend for this discussion to ~~continue~~provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from year to ~~manufacture PET nonwovens but we expect~~year, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. This discussion should be read in conjunction with our audited financial statements and accompanying notes as of September 30, 2010, and for the ~~sales of our PPS nonwoven fabrics will ultimately eclipse~~year then ended, and the ~~sales of our existing PET nonwoven products~~unaudited condensed consolidated interim financial statements for the three months and ~~become our main product offering.~~

Our manufacturing facility, which is located in Foshan City, Guangdong Province, PRC, currently has three production lines for PET nonwovens with annual product capacity of 8,000 tons. We plan to begin commercial production of our PPS nonwoven fabric in the latter part of 2010 with the addition of three high tech production lines with annual production capacity of 3,600 tons, which will bring our total overall production capacity to 11,600 tons per year.six months ended March 31, 2011.

Results of Operations

Three Months Ended ~~June 30, 2010~~March 31, 2011 Compared to Three Months Ended ~~June~~March 31, 2010

The following table shows, for the periods indicated, information derived from our consolidated statements of income in US dollars and as a percentage of net sales (percentages may not add due to rounding). See the financial statements of the Company and the related notes thereto and other financial information included elsewhere in this report.

	Three Months Ended
	March 31
	2011					2010
Net Sales	$	4,895,596		100	%	$	4,628,671		100	%
Cost of Sales		3,911,768		80	%		3,237,311		70	%
Gross Profit		983,828		20	%		1,391,360		30	%
Selling, General and Administration expenses		989,685		20	%		557,461		12	%
Income (Loss) from Operations		(5,857	)	0	%		833,899		18	%

Other income (expense)
Interest Income		7,658		0	%		292		0	%
Interest Expense		(326,235	)	-7	%		(390,355	)	-8	%
Gain (Loss) from Disposal of Fixed Assets		-		-			496		-
Changes in Fair Value of Warrants		(44,276	)	-1	%		-		0	%
Total other income (expenses)		(362,853	)	-7	%		(389,567	)	-8	%
Income (Loss) before Income Taxes		(368,710	)	-8	%		444,332		10	%
Income tax provision		3,398					-
Net Income (Loss)	$	(372,108	)	-8	%	$	444,332		10	%

Net Sales

Net sales consisted of revenue from sales of needle punched nonwoven product and thermal calendared products. Our net sales for the three month period ended March 31, 2011 were $4,895,596, an increase of $266,925, or 6%, from $4,628,671 for the same period of the prior year. The increase in revenue was primarily attributable to the appreciation of Renminbi, our transaction currency against the US dollars, our reporting currency. Reflected in the transaction currency, our net sales increased by 2% from the quarter ended March 31, 2010.

For the three month period ended March 31, 2011, sales of thermal calendared products increased by $112,482, or 4%, from the same period of the prior year. An increase of $403,038 in thermal calendared products in domestic market was offset by a decrease of $290,556 in international sales.

International sales of needle-punched products increased by $156,673 and domestic sales slightly decreased by $2,230.

Cost of Sales

Cost of sales principally consists of the cost of raw materials, labor and manufacturing overhead expenses.

Cost of sales for the three month period ended March 31, 2011 was $3,911,768, an increase of $674,457, or 21%, from $3,237,311 for the same period in 2010.

Raw material cost increased to 70% of net sales for the three month period ended March 31, 2011, compared to 52% of net sales for the same period of the prior year, reflecting more expensive raw materials associated with sales. Over 98% percent of our raw materials consist of polyester, the price of which fluctuates with the price of oil. Recent surge in the price of crude oil adversely affected the purchase price of polyester resin chips, our main raw material. During the three month period ended March 31, 2011, our cost of raw materials increased 20% from the same period of the prior year. The increase of our cost of sales was due principally from the increase in the cost of raw materials.

Labor cost accounted for 1% of net sales for the three month period ended March 31, 2011, the same level as the same period in 2009.

Overhead expenses were 14% of net sales for the three month period ended March 31, 2011, compared to 11% of net sales for the same period in 2010. As a percentage of net sales, overhead expenses increased due to lower capacity utilization and lower production volume, compared to the same period in 2010.

Gross Profit

Gross profit represents net sales less cost of sales. Gross profit for the three month period ended March 31, 2011 was $983,828, a decrease of $407,532, or 29%, from $1,391,360 for the same period in 2010. As a percentage of net sales, gross profit was 20% for the three month period ended March 31, 2011, compared to 30% for the same period of the prior year. The decrease in our gross profit was due primarily to the increase in cost of raw materials as a percentage of net sales.

Selling, General and Administrative Expenses

Selling expenses include salaries, advertising expenses, rent, and all expenses directly related to selling product. General expenses include general operating expenses that are directly related to the general operation of the Company. Administrative expenses include executive salaries and other expenses related to the overall administration of the company.

Selling, general and administrative expenses for the three month period ended March 31, 2011 were $989,685, an increase of $432,224, or 78%, compared to $557,461 for the same period in 2010. The increase primarily consisted of $132,120 in legal counsel and documentation fees related to the Company’s intended initial public offering, investor relation consulting fees of $70,500, fees paid to our auditors of $89,545, and $151,329 in stock-based employee compensation, offset by a decrease in administrative expenses.

Other Income and Expenses

Other expenses primarily consisted of interest expense while other income was primarily interest income and change in fair value of warrants.

Interest expense for the three month period ended March 31, 2011 was $326,235 compared to $390,355 for the same period in 2009. Interest expense as a percentage of sales decreased to 7% for the three month period ended March 31, 2011, from 8% for the same period of the prior year. The extension of the maturity date of the convertible notes helped reduce interest expense by decreasing accretion of the notes discount to the principal amount at the notes maturity date.

At March 31, 2011, under the requirements of FASB ASC 815, management re-measured the fair value of the warrants issued in connection with the sale of convertible notes to bridge loan creditors on February 12, 2010. This re-measurement resulted in an increase of the fair value of the warrants from December 31, 2010 and accordingly an increase of the value of the warrants liabilities and reported as other expense in amount of $44,276.

Income Tax

USA

BVI

Hong Hui is incorporated under the International Business Companies Act of the British Virgin Islands and accordingly is exempt from payment of British Virgin Island’s income taxes.

PRC

Pursuant to the PRC Income Tax Laws, the prevailing statutory rate of enterprise income tax is 25% for Foshan SLP. For 2008 and 2009, Foshan SLP enjoyed a tax free holiday for two years. From January 2010 onwards, Foshan SLP is taxed at 25% of net income except for the 2010 and 2011 years where there is a 50% discount on income tax.

The current year tax provision was $3,398 for the three months ended March 31, 2011. The Company has recorded zero deferred tax assets or liabilities as of March 31, 2011 and September 30, 2010 net of tax allowance because all other significant difference in tax basis and financial statement amounts are permanent differences. Valuation allowance is applied to deferred tax assets derived from immaterial temporary difference in tax and financial basis financial statements.

Net (Loss) Income

Our operations resulted in net loss for the three months ended March 31, 2011 in amount of $372,108, compared with a net income of $444,332 for the three months ended March 31, 2010. The net loss was attributable to a combination of declining gross margin, high general and administrative expenses and high finance cost in connection with the Company’s intended initial public offering and bridge financing.

Six Month Period Ended March 31, 2011 compared to Six Month Period Ended March 31, 2010

Three Months Ended June 30

2010
(unaudited)

2009
(unaudited)

Amount % Amount %
Net sales $ 5,072,791 100 % $ 2,482,212 100 %
Cost of sales 3,537,571 70 % 1,779,328 72 %
Gross profit 1,535,220 30 % 702,884 28 %
Selling, general and administrative expense 706,436 14 % 266,101 11 %
Operating income 828,784 16 % 436,783 18 %
Interest income 10,106 0.2 % 2,104 0 %
Interest expense (764,794 ) 15 % (65,162 ) 3 %
Loss on disposition of fixed assets - (16,263 ) 1 %
Changes in fair value of warrants 362,000 7 % - 0 %
Net income before taxes 436,096 9 % 357,462 14 %
Income tax provision 6,328 0 % - 0 %
Net income $ 429,768 8 % $ 357,462 14 %

~~Net sales~~

Net sales consisted of sales of needle punched PET nonwoven fabric and thermal calendared products. Our net sales for the three month period ended June 30, 2010 were $5,072,791, an increase of $2,590,579, or 104%, from $2,482,212 for the same period of the prior year. The increase in net sales was largely attributable to higher sales volume after a new production line used to manufacture needle-punched nonwoven fabric was installed in February 2009. Sales of needle-punched PET products for the three month period ended June 30, 2010 were $2,054,318, an increase of $1,535,566, or 296%, over the prior year. In addition, sales of thermal calendared PET materials for the three month period ended June 30, 2010 were $3,018,473, an increase of $1,062,855, or 59%, from $1,955,618 for the same period of the prior year.

~~Cost of Sales~~

~~Cost of sales principally consists of the cost of raw materials, labor and manufacturing overhead expenses.~~

Our cost of sales for the three month period ended June 30, 2010 was $3,537,571, an increase of $1,758,243, or 99%, from $1,779,328 for the same period in the prior year. The primary reason for the increase in cost of sales was an increase in our raw materials costs, which we believe was in line with our increased sales volume. 98.7% of our raw material costs consist of polyester, the cost of which increased with the price of oil.

Our raw material cost as a percentage of net sales increased to 56% for the three month period ended June 30, 2010, compared to 51% for the same period of the prior year, due to the raw materials associated with 2010 sales being more expensive than in the prior year. As a component of the cost of sales, raw material expense increased to $2,833,820 for the three months ended June 30, 2010 from $1,261,928 for the same period in the prior year. The $1,571,892 increase was due to higher pricing and increases in raw material usage. The change in material pricing contributed approximately 22% and the higher volume contributed approximately 78% of the total increase in raw material cost.

~~Labor cost accounted for 1% of net sales for the three month period ended June 30, 2010, the same level for the same period of the prior year.~~

Overhead expenses were 13% of net sales for the three month period ended June 30, 2010, compared to 18% of net sales for the same period of the prior year due to greater capacity utilization rates with the addition of our new production line in February 2009.

~~Gross Profit~~

Our gross profit for the three month period ended June 30, 2010 was $1,535,220, an increase of $832,336, or 118%, from $702,884 for the same period in the prior year. The increase in gross profit resulted primarily from the increase in our net sales. As a percentage of net sales, gross profit was 30% for the three month period ended June 30, 2010, compared to 28% for the same period last year. The improved gross profit margin was primarily attributed to lowered overhead cost as a percentage of the net sales.

~~Selling, General and Administrative Expenses~~

Selling expenses include salaries, advertising expenses, rent, cost of manufacturing and all expenses directly related to producing and selling our products. General expenses include general operating expenses that are directly related to the general operation of the company, but excluding selling and administrative expenses. Administrative expenses include executive salaries and other expenses related to the overall administration of the company.

Selling, general and administrative expenses for the three month period ended June 30, 2010 were $706,436, an increase of $440,335, or 166%, compared to $266,101 for the same period in the prior year. The increase was primarily due to increase of $47,219 in delivery charges related to overseas sales and $309,040 in legal fees related to the financing transaction which closed in February 2010.

~~Other Income and Expenses~~

Interest expense for the three month period ended June 30, 2010 was $764,791, compared to $65,162 for the same period in the prior year. Interest expense as a percentage of sales increased to 15% for the three month period ended June 30, 2010 from 3% for the same period of the prior. The increase in interest expense was mainly attributed to our adoption of derivative accounting rules under ASC 815-40 to record $4,140,000 of convertible loan notes. These accounting rules require us to accrete interest expense, in an amount of $609,900 quarterly, based on the term of the notes and note discount. Excluding the derivative-accounting-driven interest expense, our interest expense for this three month period remained the same level as for the same period of last year. The accreted interest expense was partially offset by the fair value change of the warrants after re-measurement at this reporting period.

~~Income Tax~~

~~USA~~

The Company and its subsidiary and branch divisions are subject to income taxes on an entity basis on income arising in, or derived from, the tax jurisdiction in which they operate. Since the Company had no income generated in the United States, there was no tax expense or tax liability due to the Internal Revenue Service of the United States as of June 30, 2010 and September 30, 2009.

~~BVI~~

~~Hong Hui is incorporated under the International Business Companies Act of the British Virgin Islands and accordingly, is exempted from payment of British Virgin Island’s income taxes.~~

~~PRC~~

Pursuant to the PRC Income Tax Laws, the prevailing statutory rate of enterprise income tax is 25% for Foshan SLP. For 2008 and 2009 Foshan SLP enjoys tax free holidays. From January 2010 onwards, Foshan SLP is taxed at 25% of net income except for the 2010, 2011 and 2012 in which we receive a 50% discount on income tax.

The current year tax provision was $6,328 and $6,328 for the three and nine months ended June 30, 2010, respectively. The company has recorded zero deferred tax assets or liabilities as of June 30, 2010 and September 30, 2009, net of tax allowance, because all other significant difference in tax basis and financial statement amounts are permanent differences.

~~Net Income~~

Net income for the three months ended June 30, 2010 was $429,768, an increase of $72,306, or 20%, from net income of $357,462 for the same period in the prior year. Excluding accretion of interest expense discussed above and the gains on change in warrant value, net income rose to $522,668, an increase of $165,206, or 46%, over the same period of the prior year. The increase was largely due to an increase in sales of our new needle-punched products.

~~Comparison of Nine Months Ended June 30, 2010 and June 30, 2009~~

The following table shows, for the periods indicated, information derived from our consolidated statements of income in US dollars and as a percentage of net sales (percentages may not add due to rounding). See our financial statements and the related notes thereto and other financial information included elsewhere in this report.

Nine Months Ended June 30

2010
(unaudited0)

2009
(unaudited)

Amount % Amount %
Net sales $ 14,919,816 100 % $ 7,023,045 100 %
Cost of sales 10,381,404 70 % 4,685,730 67 %
Gross profit 4,538,412 30 % 2,337,315 33 %
SG&A expense 1,518,,574 10 % 1,024,543 15 %
Operating income 3,019,838 20 % 1,312,772 19 %

Interest income 10,623 0 % 2,104 0 %

Interest expense (1,216,685 ) 8 % (225,668 ) 3 %
Changes in Fair value of warrants 362,000 2 % - 0 %
Net income before taxes 2,175,776 15 % 1,089,208 16 %
Income tax provision 6,328 0 % - 0 %
Net income $ 2,169,448 15 % $ 1,089,208 16 %

	Six Months Ended
	March 31
	2011					2010
Net Sales	$	10,676,569		100	%	$	9,847,025		100	%
Cost of Sales		8,135,330		76	%		6,843,833		70	%
Gross Profit		2,541,239		24	%		3,003,192		30	%
Selling, General and Administration expenses		1,802,321		17	%		812,138		8	%
Income from Operations		738,918		7	%		2,191,054		22	%

Other income (expense)
Interest Income		12,988		0	%		517		0	%
Interest Expense		(1,103,932	)	-10	%		(452,387	)	-5	%
Gain (Loss) from Disposal of Fixed Assets		(23,575	)	0	%		496		0	%
Government subsidy		6,133		-			-		-
Changes in Fair Value of Warrants		146,724		1	%		-		0	%
Total other income (expenses)		(961,662	)	-9	%		(451,374	)	-5	%
Income (Loss) before Income Taxes		(222,744	)	-2	%		1,739,680		18	%
Income tax provision		92,001					-
Net Income (Loss)	$	(314,745	)	-3	%	$	1,739,680		18	%

Net Sales

Net sales for the ~~nine~~six month period ended ~~June 30, 2010~~March 31, 2011 were ~~$14,919,816,~~$10,676,569, an increase of ~~$7,896,771,~~$829,544 or ~~112%~~8%, from ~~$7,023,045~~$9,847,025 for the same period of prior year. Sales of thermal calendared products for the six month period ended March 31, 2011 were $6,202,228, an increase of $642,863 compared to $5,559,365 for the same period of the prior year. ~~The increase is mainly attributable to sales of needle punched nonwoven fabric products which were launched during the second quarter of 2010.~~ Sales of needle-punched products for the ~~nine~~six month period ended ~~June 30, 2010~~March 31, 2011 were ~~$6,342,001~~$4,474,341 compared to ~~$739,097~~$4,300,022 for the same period of the prior year. ~~In addition,~~Appreciation of Renminbi, our transaction currency, against the US dollars, contributed 3% of the increase in net sales ~~of thermal calendared materials~~revenue for the ~~nine month period~~six months ended ~~June 30, 2010 were $8,577,815, an increase of $2,293,867 compared to $6,283,948 for the same period of the prior year.~~

During the nine month period ended June 30, 2010, approximately 75% and 25% of our sales revenues were generated from sales made in the PRC and internationally, respectively, compared to approximately 83% and 17%, respectively, for the same period in prior year.March 31, 2011.

Cost of Sales

Cost of sales for the ~~nine~~six month period ended ~~June 30, 2010~~March 31, 2011 was ~~$10,381,404,~~$8,135,330, an increase of ~~$5,695,674,~~$1,291,497, or ~~122%~~19%, from ~~$4,685,730~~$6,843,833 for the same period of the prior year. As a percentage of net sales, cost of sales was ~~70%~~76% for the ~~nine~~six month period ended ~~June 30, 2010~~March 31, 2011 compared to ~~67%~~70% for the same period in ~~prior year.~~2009.

Raw material costs increased to ~~55%~~64% of ~~net~~the sales for the ~~nine~~six month period ended ~~June 30, 2010,~~March 31, 2011, compared to ~~44%~~56% of ~~net~~ sales for the same period in ~~the prior year,~~2010, reflecting ~~a mix of~~ more expensive raw materials associated with ~~2010~~2011 sales. ~~Approximately~~Over 98% of our raw materials consist of polyester, the price of which fluctuates with the price of oil.

As a component of the cost of sales, raw material expense increased to $8,201,053 for the nine months ended June 30, 2010, from $3,090,140 for the same period of prior year. The increase of $5,115,749 was caused by an increase in material purchase price and higher volume of material usage due to an increase in production output. The rise in material purchase price and volume accounted for approximately 29% and approximately 71% of the total raw material cost increase, respectively.

Labor ~~cost was~~costs were 1% of net sales for the ~~nine~~six month period ended ~~June 30, 2010~~March 31, 2011, and remained the same percentage when compared to 2%the percentage for the same period in ~~the prior year.~~2010.

Overhead expenses were ~~13%~~14% of net sales for the ~~nine~~six month period ended ~~June 30, 2010,~~March 31, 2011, compared to ~~20%~~12% of net sales for the same period ~~in the prior~~last year due to ~~greater capacity utilization rates with the addition of our new production line~~increase in ~~February 2010.~~utility cost and depreciation expense.

Gross Profit

Gross profit for the ~~nine~~six month period ended ~~June 30, 2010~~March 31, 2011 was ~~$4,538,412, an increase~~$2,541,239, a decrease of ~~$2,201,097,~~$461,953, or ~~94%~~15%, from ~~$2,337,315~~$3,003,192 for the same period of the prior year. As a percentage of net sales, gross profit was ~~30%~~24% for the ~~nine~~six month period ended ~~June 30,~~March 31, 2010, compared to ~~33%~~30% for the same period ~~of the prior~~last year. This decrease was primarily due to ~~the~~ increase in the purchase price of the raw materials associated with ~~2010 sales, which price increase was caused by fluctuations in the price of oil.~~2011 sales.

~~SG&A~~Selling, General and Administrative Expenses

Selling, general and administrative expenses for the ~~nine~~six month period ended ~~June 30, 2010~~March 31, 2011 were ~~$1,518,574,~~$1,802,321, an increase of ~~$494,031,~~$990,183, or ~~48%~~122%, compared to ~~$1,024,543~~$812,138 for the same period of the prior year. This isincrease was mainly due to ~~increased~~an increase in audit fees of $115,824, legal counsel fees of $177,096, investor relation consulting fees of $141,000, $350,398 in equity-based compensation expense, $18,449 SEC filing related expenses, and other expenses related to convertible note financing completed in February 2010, including fees totaling $554,000 paid or payable to Primary and United Best, and the intended public offering and shipping expenses associated with overseas sales, offset by a decrease in other general expenses.foreign currency exchange loss of $103,029.

Other ~~Income and~~ Expenses

Interest expense for the ~~nine~~six month period ended ~~June 30,~~March 31, 2010 was ~~$1,216,685~~$1,103,932 compared to ~~$225,668~~$452,387 for the same period of the prior year. Interest expense as a percentage of net sales increased to 8%10% for the ~~nine~~six month period ended ~~June 30, 2010~~March 31, 2011 from 3%5% for the same period of the prior year. The ~~cause for the~~ increase in interest expense for the ~~nine month period~~six months ended March 31, 2011 was principally due to the ~~same as for~~amortization of the three month period. Excluding the accretion of interest, interest expense for this nine month period increased by $76,000 over the same period of last year, and, as a percentage of net sales, decreased to 2% from 3%.convertible note discount.

Net (Loss) Income

~~Net income~~Our operations resulted in net loss for the ~~nine~~six months ended ~~June 30, 2010 was $2,169,448, or 99%, an increase~~March 31, 2011 in amount of ~~$1,080,240 from~~$314,745, compared with a net income of ~~$1,089,208~~$1,739,680 for the ~~same period in the prior year.~~six months ended March 31, 2010. The ~~increase~~net loss was ~~mainly attributed~~attributable to ~~increased net sales generated from our new needle-punched products and lower selling,~~a combination of declining gross margin, high general and administrative expenses ~~relative to net sales. Excluding IPO related expenses~~ and ~~accretion of interest expense from convertible notes sold, net income increased by approximately $2,100,000 from net income for~~high finance cost in connection with the ~~same period in the prior year.~~
Company’s intended initial public offering and bridge borrowings.

Liquidity and Capital Resources

The following table sets forth a summary of our net cash flow information for the periods indicated:

	Three Month Periods Ended December 31,
	2011			2010
	(Consolidated)			(Consolidated)
Net cash provided by (used in) operating activities	$	(126,527	)	$	1,553,423
Net cash (used in) investing activities	$	(1,250,614	)	$	(1,389,582	)
Net cash provided by (used in) financing activities	$	(362,554	)	$	2,636,263
Effect of currency exchange rate	$	(6,659	)	$	(5,418	)
Net cash inflow (outflow)	$	(1,746,354	)	$	2,794,686

Nine Months Ended June 30,
2010 2009

(Consolidated,
unaudited)

(Consolidated,
unaudited)

Net cash provided by (used in) operating activities $ 2,860,129 $ (233,933 )
Net cash (used in) investing activities $ (2,511,303 ) $ (108,869 )
Net cash provided by (used in) financing activities $ 2,635,167 $ (198,620 )
Net cash inflow (outflow) $ 2,983,993 $ (541,422 )

We finance our legacy business with cash generated from operations and use short-term bank loans to fund capital expenditures.

Working capital consists mainly of cash, ~~and equivalents,~~ accounts receivable, advances to suppliers and inventory. Cash, ~~and equivalents,~~ inventory and accounts receivable account for the majority of our working capital.

Our working capital requirements may be influenced by many factors, including ~~our~~ cash flow, competition, relationships with suppliers, and the availability of credit facilities and financing alternatives, none of which can be predicted with certainty.

Our investment in new production facilities to manufacture PPS filtration products consumed a large amount of the proceeds obtained from bank loans and the issuance of convertible notes. This capital expenditure to a large extent affected our liquidity.

The planned production of our new PPS products will require a large amount of working capital to purchase expensive raw materials from foreign suppliers. Our operating cash inflow will not be adequate to meet the new working capital needs. Therefore, we are actively seeking public and private financing to acquire additional capital in order to expand our business.

At ~~June 30, 2010,~~March 31, 2011, we had ~~several~~outstanding bank loans in the total amount of ~~$3.8~~$3.5 million ~~(RMB26~~(RMB 23 million) with ~~Agriculture~~Industrial and Commercial Bank of China, Foshan ~~Branch. These loans are~~branch office. The loan is repayable on February 14, 2012.

On January 31, 2011, we entered into a note extension agreement with each holder (except for Lumen Capital LP who held a convertible note in ~~December 2010.~~the principal amount of $100,000) of our outstanding convertible notes to extend the maturity date of the notes from February 12, 2011 to June 30, 2011. On February 11, 2011, we repaid the note held by Lumen Capital. The proceeds received from the sale of the notes were invested in the manufacturing facility to make our new products.

On February 12, 2010, we completed a financing transaction in which we raised gross proceeds of $4,140,000 through a private placement of convertible notes and warrants to certain accredited investors.

~~Operating Activities~~

Net cash provided by operating activities for the nine months ended June 30, 2010 was approximately $2,860,129, compared to cash used of $0.25 million for the same period of prior year. The increased operating cash inflow resulted primarilyCash Flow from ~~an increase in net income and favorable changes in advances to suppliers, accounts payable and accrued expenses, offset by unfavorable changes in accounts receivable, inventory and prepaid expenses.~~

~~Investing~~Operating Activities

Net cash used in ~~investing~~operating activities ~~was $2,511,303~~ for ~~nine~~the six months ended ~~June 30, 2010,~~March 31, 2011 was $126,527, compared to ~~$108,869~~$1.5 million provided by operating activities for the same period of the prior year. The ~~increased~~operating cash outflow resulted primarily from a decrease in net income and an increase in accounts receivable, advances to suppliers, and inventory, which were offset by an increase in accounts payable and accrued liabilities.

Cash Flow from Investing Activities

Net cash used inby investing activities for the six months ended March 31, 2011was $1.25 million, compared to $1.4 million used for the same period of the prior year. The cash used by investing activities during the ~~nine months~~six month period ended ~~June 30, 2010~~March 31, 2011 was primarily ~~attributable~~for the capital project to ~~capital expenditures on our~~build up a new PPS ~~production line.~~manufacturing facility.

Cash Flow from Financing Activities

Net cash ~~provided by~~used in financing activities for the ~~nine month period~~six months ended ~~June 30, 2010 was approximately $2.64~~March 31, 2011was $0.36 million, compared to ~~$0.20~~$2.64 million of net cash ~~used in~~provided by financing activities for the same period of the prior year. ~~The increase was from~~During the ~~cash received from the sale of the convertible notes.~~

~~Loans and Credit Facilities~~

The balance of our outstanding short-term bank loans on June 30, 2010 was approximately $3,800,000, compared with approximately $4,600,000 on June 30, 2009. Other than disclosed in the financial statements, we had no long term debt, capital lease obligations, operating leases or any other long term obligations as of June 30, 2010.

On February 12, 2010, we entered into a note purchase agreement with certain accredited investors for the sale of convertible notes in the aggregate principal amount of $4,140,000 and warrants (which are exercisable only in certain circumstances), with net proceeds for $3.4 million after finance costs. The notes require quarterly interest payments at a rate of 10% per annum and interest for six months ~~in amount~~ended March 31, 2011, the Company repaid more than borrowed from banks. The new loan obtained from Industrial and Commercial Bank of ~~$204,464~~China was mainly used to ~~be held in an escrow account. The notes are convertible into shares~~pay off the loan from Agriculture Bank of ~~common stock at a 65% discount to the offering price upon consummation of a “qualified financing”. The offering contemplated by this prospectus is expected to be a “qualified financing.”~~

The warrants become void if the notes automatically convert into common stock which is expected to occur upon consummation of this offering. The warrants are exercisable at any time during a five-year period commencing on the closing of a “financing,” which means the first sale (or series of related sales) by us of stock (or debt or equity securities convertible into stock), in a capital raising transaction, occurring after the maturity date (or the date the notes become due pursuant to a default, if earlier) with aggregate gross proceeds of at least $20,000,000. The warrants cannot be exercised if no financing is consummated within the five-year period after the issue date.China.

Future Cash Commitments

~~Our planned~~We have an ambitious business expansion ofplan for our PPS ~~manufacturing facilities in 2010 will~~products. The PPS projects require significant ~~investment capital.~~capital expenditures. We ~~intend to use~~financed the ~~net proceeds of the offering to purchase~~capital expenditures with short-term loans from banks and install three new production lines to manufacture PPS materials which will increase our annual output to 11,600 tons of nonwoven material. The estimated cost of this equipment is approximately $20,000,000. In the future, we may needintended public equity offerings to raise additional capital ~~if the proceeds from the two financings and our operating cash flows are inadequate~~ to ~~continue~~fund our capital ~~expansion plans.~~projects. In addition, the planned launch of sales of PPS products will require a significant amount of working capital to purchase expensive raw materials. The new need of additional working capital will be met through private and public equity financing.

Critical Accounting Policies and Estimates

~~Management's~~Management’s discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. Our financial statements reflect the selection and application of accounting policies which require management to make significant estimates and judgments. See Note 23 to our consolidated financial statements “Summary of Significant Accounting Policies.” We believe that the following paragraphs reflect the more critical accounting policies that currently affect our financial condition and results of operations:

Method of Accounting

We maintain our general ledger and journals with the accrual method of accounting for financial reporting purposes. Accounting policies adopted by us conform to generally accepted accounting principles in the United States and have been consistently applied in the presentation of financial statements, which are compiled on the accrual basis of accounting.

Use of estimates

The preparation of the financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.

Economic and political risks

Our operations are conducted in the PRC. Accordingly, our business, financial condition and results of operations may be influenced by the political, economic and legal environment in the PRC, and by the general state of the PRC economy.

Our operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. Our results may be adversely affected by changes in political and social conditions in the PRC and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation, among other things.

Revenue recognition

Revenue represents the invoiced value of goods sold recognized upon the delivery of goods to customers. Revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, and the seller’s price to the buyer is fixed or determinable and collectible.

Land use rights

Land use rights are stated at cost less accumulated amortization. Amortization is provided over ~~the respective useful lives,~~a lease term of 50 years using the straight-line method. ~~Estimated useful lives range from 20 to 50 years.~~

Property, plant and equipment

Plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method. Estimated useful lives of plant and equipment are as follows:

Buildings	~~15-35~~	20 years
Machinery and equipment		10 years
Office equipment	~~6-10~~	5 years
Motor vehicles	~~6-8 years~~
~~Other assets~~	~~6-10~~10 years

The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the statement of income. The cost of maintenance and repairs is charged to income as incurred, whereas significant renewals and betterments are capitalized.

Accounting for the Impairment of Long-Lived Assets

The long-lived assets held and used by us are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonable likely to have a current or future effect on our financial condition.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Increases in the price of crude oil have a negative impact on the cost of our raw materials. Given the recent rise in the price of crude oil and the fact that the global economy is recovering, we expect that the price of our raw materials will stay at relatively high levels due to the relatively high price of crude oil which will adversely affect our gross margin for our PET products as our ability to pass on the increased material costs to customers is limited.

During 2010, all of our raw materials were purchased from suppliers located in the PRC. Because the raw materials for our new PPS products are expected to be sourced from the United States and Japan, we anticipate that, after introduction of our PPS products, a significant amount of our raw materials will be purchased from suppliers in the United States and Japan through their distributors in China. Accordingly, changes in the value of the RMB relative to the dollar and yen will affect our production costs and gross profit in 2011. However, we believe the RMB will continue to appreciate against the dollar based on the increasing pressure from the US government and so the impact of foreign currency conversion will be favorable to us.

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures.

We maintain “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that is required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our management, including Mr. Jie Li, our ~~chief executive officer~~Chief Executive Officer and Mr. Eric Gan our ~~chief financial officer,~~Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures ~~and internal controls~~ as of ~~June 30, 2010.~~March 31, 2011. Based on that evaluation, Mr. ~~Lie~~Li and Mr. Gan concluded that as of ~~June 30, 2010,~~March 31, 2011, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures ~~and internal controls~~ was completed, our disclosure controls and procedures ~~and internal controls~~ were not effective in that certain ~~“material weaknesses”~~“significant deficiencies” existed related to (i) the U.S. GAAP expertise of our internal accounting staff, and (ii) our internal audit function.

A material weakness is a control deficiency, or a combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected.

As more fully disclosed in a Current Report on Form 8-K filed on November 18, 2010, subsequent to the issuance of our consolidated financial statements for the three and nine months ended June 30, 2010, included in our Quarterly Report on Form 10-Q for the period ended June 30, 2010, filed with the United States Securities and Exchange Commission on August 16, 2010, and in connection with the SEC’s review of our registration statement on Form S-1 (File No. 333-168028), originally filed on July 8, 2010, as amended on September 7, 2010 and October 15, 2010, it was identified that (i) we failed to record a liability of $75,000 owed to each of United Best and Primary Capital (totaling $150,000) for advisory services rendered in connection with our private placement of convertible notes which closed on February 12, 2010, and (ii) we failed to record a grant of 30,000 shares of common stock in June 2010 to a director of the Company.

Our chief executive officer and chief financial officer and our Audit Committee determined , after discussions with Child, Van Wagoner & Bradshaw, PLLC, our independent registered public accounting firm, that (i) our unaudited interim financial statements for the three month and nine month periods ended June 30, 2010 and 2009, as set forth in the Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 filed on August 16, 2010, and (ii) our unaudited interim financial statements for the three month and six month periods ended March 31, 2010 and 2009, as set forth in the Quarterly Report on Form 10-Q filed on May 24, 2010, as amended on May 26, 2010 should be restated and should not be relied on.

Changes in Internal Control over Financial Reporting.

Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we identified a number of “significant deficiencies” in the process of preparing our financial statements for the quarter ended March 31, 2011 as described above.

Because our current accounting department is relatively new to U.S. GAAP and the related internal control procedures required of U.S. public companies, our management has determined that they require additional training and assistance in U.S. GAAP ~~matters.~~matters and the SEC regulations. Management has determined that our internal audit function is also significantly deficient due to insufficient qualified resources to perform internal audit functions.

In order to correct the foregoing significant deficiencies, we ~~are taking or~~ have taken the following remediation measures:

~~In August 2010, we hired Eric Gan as our new chief financial officer;~~

We ~~are arranging~~have arranged for necessary training for our accounting department staff;

We plan to engage external professional accounting orand consultancy firms to assist us in the preparation of the ~~U.S.~~US GAAP accounts; and

We ~~have allocated financial and human resources~~remain committed to ~~strengthen~~ the establishment of effective internal control structure and we have been actively working with external consultants to assess our data collection, financial reporting, and control procedures and to strengthen our internal controls over financial reporting.audit functions.

We believe that the foregoing steps will remediate the significant deficiencies identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate. ~~However, there is no guarantee that these improvements will be adequate or successful or that such improvements will be carried out on a timely basis.~~

Other than described above, there was no change in our internal control over financial reporting during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.24

PART II

OTHER INFORMATION

ITEM 6.

EXHIBITS.

The following exhibits are filed as part of this report or incorporated by reference:

Exhibit No.		Description

31.1		Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

3025

SIGNATURES

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

~~Dated: November 24, 2010~~

	CHINA SLP FILTRATION TECHNOLOGY, INC.

Dated: May 18, 2011	By:	/s/ Jie Li
		Jie Li
		Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Eric Gan
		Eric Gan
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

3126

EXHIBIT INDEX

Exhibit No.		Description

31.1		Certification of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

3227

Delaware		~~90-0475058~~84-1465393
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

Large Accelerated Filer ¨	Accelerated Filer ¨
Non-Accelerated Filer ¨(Do not check if a smaller reporting company)	Smaller reporting company x

	Page

Unaudited Condensed Consolidated Balance Sheets ~~(Restated)~~	4

Unaudited Condensed Consolidated Statements of Operations and Comprehensive ~~Loss (Restated)~~Income (Loss)	5

Unaudited Condensed Consolidated Statements of Cash Flows ~~(Restated)~~	6

~~Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity (Restated)~~	7

Notes to Unaudited Consolidated Financial Statements ~~(Restated)~~	87

	March 31,		September 30,
	2011		2010
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	3,548,947	$	5,295,301
Accounts receivable - Net		3,206,644		2,207,073
Advance to suppliers		461,237		-
Inventory		2,073,068		1,564,537
Prepaid taxes		472,665		-
Prepaid expenses and other current assets		830,357		585,385
Total Current Assets		10,592,918		9,652,296

Deposits		8,061		4,906,370
Property and equipment - Net		16,790,642		10,961,234
Receivable from related party		36,777		-
Land use rights - Net		540,524		535,480
Total Assets	$	27,968,922	$	26,055,380

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Short-term loan	$	3,511,397	$	3,796,053
Accounts payable and accrued liabilities		2,016,884		742,384
Customers’ deposits		158,710		286,700
Other payable - related party		164,134		160,673
Taxes payable		58,623		31,406
Warrants liabilities		592,276		739,000
Convertible notes payable, net of discount		3,887,453		3,225,007
Total Current Liabilities		10,389,477		8,981,223

Total Liabilities		10,389,477		8,981,223

Stockholders’ Equity
Preferred stock, $0.001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding		-		-
Common stock, $0.001 par value, 200,000,000 shares authorized, 15,265,714 shares issued and outstanding at March 31, 2011 and September 30, 2010		15,266		15,266
Additional paid-in capital		8,726,258		8,375,860
Retained earnings		6,406,864		6,721,609
Accumulated other comprehensive income		2,431,057		1,961,422
Total Stockholders’ Equity		17,579,445		17,074,157

Total Liabilities and Stockholders’ Equity	$	27,968,922	$	26,055,380

	Restated
	June 30,		September 30,
	2010		2009
	(Unaudited)

Current Assets
Cash and cash equivalents	$	6,333,417	$	3,297,648
Accounts receivable - Net		2,258,662		1,424,835
Advance to suppliers		453,174		685,551
Inventory		1,490,078		1,197,289
Prepaid expenses and other current assets		279,595		45,656
Total Current Assets		10,814,926		6,650,979

Deposits		2,193,202		0
Property and equipment - Net		11,032,609		10,711,865
Receivable from related party		1,111		773,672
Land use rights - Net		531,506		537,350
Total Assets	$	24,573,354	$	18,673,866

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short term loan	$	3,833,994	$	4,578,409
Accounts payable and accrued liabilities		846,703		410,114
Client's deposits		-		75,176.00
Taxes payable		9,378		726
Warrants liabilities		690,000		-
Convertible notes payable $4,140,000, net of discount		2,615,107		-

Total Current Liabilities		7,995,182		5,064,425

Total Liabilities		7,995,182		5,064,425
Stockholders' Equity

Preferred stock, $0.001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding		-		-
Common stock, $0.001 par value, 40,000,000 shares authorized, 15,265,714 and 14,510,204 shares issued and outstanding at June 30, 2010 and September 30, 2009		15,266		14,510
Additional paid-in capital		8,210,552		7,548,752
Retained earnings		6,669,980		4,500,532
Accumulated other comprehensive income		1,682,374		1,545,647
Total Stockholders' Equity		16,578,172		13,609,441

Total Liabilities and Stockholders' Equity	$	24,573,354	$	18,673,866

Class of Securities		Shares Outstanding
Common Stock, $0.001 par value		15,265,714

PART I
FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS.	43
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	2017
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	24
ITEM 4.	CONTROLS AND PROCEDURES.	2924

PART II
OTHER INFORMATION

ITEM 1.	~~LEGAL PROCEEDINGS.~~
~~ITEM~~ 6.	EXHIBITS.	3025

	Three Months Ended						Nine Months Ended
	June 30						June 30
	Restated 2010			2009			Restated 2010			2009
Net Sales	$	5,072,791		$	2,482,212		$	14,919,816		$	7,023,045
Cost of Sales		3,537,571			1,779,328			10,381,404			4,685,730
Gross Profit		1,535,220			702,884			4,538,412			2,337,315

Selling, General and Administrative Expenses		706,436			266,101			1,518,574			1,024,543
Income from Operations		828,784			436,783			3,019,838			1,312,772

Other Income (expense)
Interest Income		10,106			2,104			10,623			2,104
Interest Expense		(764,794	)		(65,162	)		(1,216,685	)		(225,668	)
Loss on disposal of fixed assets		-			(16,263	)		-			-
Changes in Fair Value of Warrants		362,000			-			362,000			-
Total Other Income (expenses)		(392,688	)		(79,321	)		(844,062	)		(223,564	)
Income before Income Taxes		436,096			357,462			2,175,776			1,089,208
Income Tax Provision		6,328			-			6,328			-
Net Income	$	429,768		$	357,462		$	2,169,448		$	1,089,208

Other Comprehensive Income
Foreign Currency Translation Adjustments		161,972			24,560			136,727			(66,276	)
Total Comprehensive Income	$	591,740		$	382,022		$	2,306,175		$	1,022,932

Net Income Per Common Shares:
Basic and Diluted	$	0.03		$	0.02		$	0.15		$	0.08
Weighted-Average Common Shares Outstanding:
Basic		15,245,604			14,510,204			14,879,603			14,510,204
Diluted		17,217,033			14,510,204			15,886,667			14,510,204

	Six Months Ended March 31
	2011			2010

Cash Flow from Operating Activities:
Net income (loss)	$	(314,745	)	$	1,739,680
Adjustments to reconcile net income (loss) to net cash flow provided by (used in) operating activities:
Depreciation		607,464			569,358
Amortization		6,420			6,217
Bad debt allowance		(7,425	)		-
Non-cash interest charges		762,447			304,950
Equity-based compensation expense		350,398			-
Change in warrants valuation		(146,724	)		-
Loss (gain) from disposal of fixed assets		23,576			(496	)

Change in operating assets and liabilities:
Accounts receivable		(934,606	)		(491,997	)
Advance to suppliers		(456,388	)		(656,586	)
Inventory		(469,846	)		173,173
Prepaid taxes		(467,695	)		-
Prepaid expenses and other current assets		(229,922	)		(143,956	)
Accounts payable & accrued liabilities		1,256,439			111,719
Customers deposits		(132,754	)		(75,069	)
Taxes payable		26,834			16,430
Net cash provided by (used in) operating activities		(126,527	)		1,553,423

Cash Flow from Investing Activities:
Addition-property and equipment, land use right		(1,218,056	)		(3,333	)
Deposits for purchase of equipment		-			(1,946,280	)
Proceeds from disposal of fixed assets		3,832			496
Proceeds from related party		-			559,535
Advance to related party		(36,390	)		-
Net cash (used in) provided by investing activities		(1,250,614	)		(1,389,582	)

Cash Flow from Financing Activities:
Repayment of loans		(7,764,702	)		(768,535	)
Proceeds from loans		7,402,148			3,404,798
Net cash provided by (used) in financing activities		(362,554	)		2,636,263

Effects of Exchange Rates on Cash		(6,659	)		(5,418	)
Net increase (decrease) in cash and cash equivalents		(1,746,354	)		2,794,686
Cash and cash equivalents, beginning of year		5,295,301			3,297,648

Cash and cash equivalents, end of year	$	3,548,947		$	6,092,334

Supplemental information of cash flows
Cash paid for interest	$	335,480		$	85,329
Cash paid for income taxes	$	52,166			-

	Nine Months Ended June 30
	Restated 2010			2009

Cash Flow from Operating Activities:
Net income	$	2,169,448		$	1,089,208
Adjustments to reconcile net income to net cash
flow provided by (used in) operating activities:
Stock compensation	$	5,000			-
Depreciation		864,016			632,799
Amortization		9,339			9,342
Changes in fair value of warrants		(362,000	)		-
Non-cash interest charges		914,850
Change in operating assets and liabilities:
Accounts receivable		(832,721	)		(561,041	)
Allowance for doubtful accounts		13,743
Advance to suppliers		235,358			(34,311	)
Inventory		(282,992	)		(525,210	)
Prepaid expenses and other current assets		(232,102	)		(131,539	)
Accounts payable & accrued liabilities		432,009			(610,775	)
Clients' deposits		(75,176	)		(93,457	)
Taxes payable		1,357			(8,949	)
Net cash provided by (used in) operating activities		2,860,129			(233,933	)

Cash Flow from Investing Activities:
Addition-property, equipment, and land use rights		(1,105,084	)		(844,747	)
Deposits for purchase of equipment		(2,178,792	)		-
Proceeds from related party receivable		772,573			735,878
Net cash (used in) provided by investing activities		(2,511,303	)		(108,869	)

Cash Flow from Financing Activities:
Repayment of loans		(769,631	)		(5,172,817	)
Proceeds from loans		-			4,974,197
Proceeds from notes issued		3,404,798			-
Net cash provided by (used) in financing activities		2,635,167			(198,620	)

Effects of Exchange Rates on Cash		51,776			(14,504	)
Net increase (decrease) in cash and cash equivalents		3,035,769			(555,926	)

Cash and cash equivalents, beginning of year		3,297,648			2,367,570

Cash and cash equivalents, end of year	$	6,333,417		$	1,811,644

Supplemental information of cash flows
Cash paid for interest	$	298,270		$	216,705
Cash paid for income taxes	$	-		$	-

												Accumulated
							Additional					Other			Total
	Common Stock						Paid-in			Retained		Comprehensive			Stockholders'
	Shares			Amount			Capital			Earnings (Deficit)		Income			Equity

BALANCE, September 30, 2008		14,510,204		$	14,510		$	7,548,752		$	2,054,880	$	1,602,725		$	11,220,867

Net Income		-			-			-			2,445,652		-			2,445,652

Currency translation adjustment		-			-						-		(57,078	)		(57,078	)

BALANCE, September 30, 2009		14,510,204		$	14,510		$	7,548,752		$	4,500,532	$	1,545,647		$	13,609,441

Shares effectively issued to former shareholders – 2/12/2010		2,600,000			2,600			(2,600	)							-

Cancellation of stock in recapitalization		(2,528,000	)		(2,528	)		2,528								-

Shares issued to placement agents in conjunction with convertible note		653,510			654			656,902					-			657,556
Restricted shares issued – Restated		3,000			30			4,970								5,000
Net Income – Restated		-			-			-			2,169,448					2,169,448

Currency translation adjustment		-			-			-			-		136,727			136,727

BALANCE, June 30, 2010 - UNAUDITED Restated		15,265,714		$	15,266		$	8,210,552		$	6,669,980	$	1,682,374		$	16,578,172

Building and plant	20 years
Machinery	10 years
Office equipment and other equipment	5 years
Vehicles	10 years

	June 30, 2010			September 30, 2009

Land use rights	$	626,699		$	622,578
Less:
Accumulated amortization		(95,193	)		(85,228	)
	$	531,506		$	537,350

Gross proceeds	$	4,140,000
Less:
Commission paid to placement agent		404,000
Legal fee		326,187
Net proceeds	$	3,409,813

Net proceeds were presented as follows:
Recorded warrants as derivative liability	$	1,052,000
Allocated remaining proceeds to :
Common stock issued to placement agents		657,556
Convertible Note		1,700,257

Warrants	$	1,052,000
Stock issued to placement agent		657,556
Cash paid for commission and legal fees		730,187
	$	2,439,743

	For the three months ended
	June 30, 2010			June 30, 2009
Net Income
(numerator for basic income per share)	$	429,768		$	357,462
Plus interest on convertible note		697,811			-
Net Income - assumed conversions
(numerator for diluted income per share)	$	1,127,579		$	357,462

Weighted average common shares
(denominator for basic income per share)		15,245,604			14,510,204

Effect of Dilutive Securities:
Warrants - treasury stock method		-			-
Convertible note as if-converted method		1,971,429			-
Weighted average common shares
(denominator for diluted income per share)		17,217,033			14,510,204

Basic net income per share	$	0.03		$	0.02
Diluted net income per share	$	0.07	Antidilutive	$	0.02

	For the nine months ended
	June 30, 2010			June 30, 2009
Net Income
(numerator for basic income per share)	$	2,169,448		$	1,089,208
Plus interest on convertible note		1,114,535			-
Net Income - assumed conversions
(numerator for diluted income per share)	$	3,283,983		$	1,089,208

Weighted average common shares
(denominator for basic income per share)		14,879,603			14,510,204

Effect of Dilutive Securities:
Warrants - treasury stock method		-			-
Convertible note as if-converted method		1,007,064			-
Weighted average common shares
(denominator for diluted income per share)		15,886,667			14,510,204

Basic net income per share	$	0.15		$	0.08
Diluted net income per share	$	0.21	Antidilutive	$	0.08

	At date of issuance			As of
Attribute	February 12, 2010			June 30, 2010

Warrants outstanding		1,218,857	(*)		1,218,857	(*)
Exercise Price	$	2.45		$	2.45
Risk Free Interest Rate		2.25	%		0.32	%
Volatility		90	%		70	%
Dividend Yield		0	%		0	%
Contractual Life (years)		1			0.7

	For the three months ended						For the nine months ended
	June 30,						June 30,
	2010			2009			2010			2009

Income Tax Expense:

Current tax	$	6,328		$	0		$	6,328		$	0
Change in deferred tax assets – Net operating loss		46,911			76,959			285,019			199,513

Change in valuation allowance		(46,911	)		(76,959	)		(285,019	)		(199,513	)

Total	$	6,328		$	0		$	6,328		$	0

	As reported		As restated
	June 30, 2010		June 30, 2010

Accounts payable and accrued liabilities	$	696,703	$	846,703
Total Current Liabilities	$	7,845,182	$	7,995,182
Common stock, $0.001 par value	$	15,236	$	15,266
Additional paid-in capital	$	8,205,582	$	8,210,552
Retained earnings	$	6,824,980	$	6,669,980
Total Stockholders’ equity	$	16,728,172	$	16,578,172

	Three months ended				Nine months ended
	30-Jun-10				30-Jun-10
	As reported		As restated		As reported		As restated
Selling, General and Administrative Expenses	$	701,436	$	706,436	$	1,363,574	$	1,518,574
Income from Operations	$	833,784	$	828,784	$	3,174,838	$	3,019,838
Income before Income Taxes	$	441,096	$	436,096	$	2,330,776	$	2,175,776
Net Income	$	434,768	$	429,768	$	2,324,448	$	2,169,448
Earings per share – basic and diluted	$	0.03	$	0.03	$	0.15	$	0.15
Weighted-average Common Stock Shares Outstanding
Basic		15,235,714		15,245,604		14,879,603		14,879,603
Diluted		16,925,510		17,217,033		15,739,975		15,886,667

	Three Months Ended June 30
	2010 (unaudited)						2009 (unaudited)
	Amount			%			Amount			%
Net sales	$	5,072,791			100	%	$	2,482,212			100	%
Cost of sales		3,537,571			70	%		1,779,328			72	%
Gross profit		1,535,220			30	%		702,884			28	%
Selling, general and administrative expense		706,436			14	%		266,101			11	%
Operating income		828,784			16	%		436,783			18	%
Interest income		10,106			0.2	%		2,104			0	%
Interest expense		(764,794	)		15	%		(65,162	)		3	%
Loss on disposition of fixed assets		-						(16,263	)		1	%
Changes in fair value of warrants		362,000			7	%		-			0	%
Net income before taxes		436,096			9	%		357,462			14	%
Income tax provision		6,328			0	%		-			0	%
Net income	$	429,768			8	%	$	357,462			14	%

	Nine Months Ended June 30
	2010 (unaudited0)						2009 (unaudited)
	Amount			%			Amount			%
Net sales	$	14,919,816			100	%	$	7,023,045			100	%
Cost of sales		10,381,404			70	%		4,685,730			67	%
Gross profit		4,538,412			30	%		2,337,315			33	%
SG&A expense		1,518,,574			10	%		1,024,543			15	%
Operating income		3,019,838			20	%		1,312,772			19	%

Interest income		10,623			0	%		2,104			0	%

Interest expense		(1,216,685	)		8	%		(225,668	)		3	%
Changes in Fair value of warrants		362,000			2	%		-			0	%
Net income before taxes		2,175,776			15	%		1,089,208			16	%
Income tax provision		6,328			0	%		-			0	%
Net income	$	2,169,448			15	%	$	1,089,208			16	%

	Nine Months Ended June 30,
	2010			2009
	(Consolidated, unaudited)			(Consolidated, unaudited)
Net cash provided by (used in) operating activities	$	2,860,129		$	(233,933	)
Net cash (used in) investing activities	$	(2,511,303	)	$	(108,869	)
Net cash provided by (used in) financing activities	$	2,635,167		$	(198,620	)
Net cash inflow (outflow)	$	2,983,993		$	(541,422	)