Vlov 10Q 2009 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

¨	Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934

For the quarterly period ended: September 30, 2009

¨	Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934

For the transition period from ______________ to _______________

Commission File Number: 000-53155

VLOV INC.

(Exact name of registrant as specified in its charter)

Nevada		20-8658254
(State or other jurisdiction of incorporation of origination)		(I.R.S. Employer Identification Number)

No 1749-1751 Xiangjiang Road Shishi City, Fujian Province People’s Republic of China		N/A
(Address of principal executive offices)		(Zip code)

(86595) 88554555

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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

Large accelerated filer ¨	Accelerated filer ¨

Non-accelerated filer ¨	Smaller reporting company x

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each issuer’s classes of common stock, as of the latest practicable date: 16,014,421 shares issued and outstanding as of November 10, 2009.

TABLE OF CONTENTS

TO QUARTERLY REPORT ON FORM 10-Q

FOR QUARTER ENDED SEPTEMBER 30, 2009

		Page
PART I	FINANCIAL INFORMATION	4
Item 1.	Financial Statements	4
	Consolidated Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008	4
	Consolidated Statements of Income and Comprehensive Income for the three months and nine months ended September 30, 2009 and 2008 (unaudited)	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008 (unaudited)	6
	Notes to the Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22
Item 4.	Controls and Procedures	22

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Submission of Matters to a Vote of Security Holders	23
Item 5.	Other Information	23
Item 6.	Exhibits	23
Signatures		25

CAUTION REGARDING FORWARD-LOOKING INFORMATION

All statements contained in this Quarterly Report on Form 10-Q (“Form 10-Q”) for VLOV Inc., other than statements of historical facts, that address future activities, events or developments are forward-looking statements, including, but not limited to, statements containing the words “believe,” “anticipate,” “expect” and words of similar import. These statements are based on certain assumptions and analyses made by us in light of our experience and our assessment of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. However, whether actual results will conform to the expectations and predictions of management is subject to a number of risks and uncertainties that may cause actual results to differ materially.

Such risks include, among others, the following: national and local general economic and market conditions; our ability to sustain, manage or forecast our growth; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings.

Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by management will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our business operations.

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

VLOV, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

	September 30,		December 31,
	2009		2008
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	9,328	$	2,863
Pledged bank deposits		-		88
Accounts receivable		7,333		7,843
Inventories		790		514
Prepaid expenses		7		-
Total current assets		17,458		11,308
Property, plant and equipment, net		1,003		1,067
Land use rights		265		272
TOTAL ASSETS	$	18,726	$	12,647

LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable	$	5,049	$	2,040
Accrued expenses and other payables		252		543
Amount due to a director		1		2
Bills payable		-		293
Short-term bank loans		734		587
Income taxes payable		1,429		1,613
Total liabilities		7,465		5,078

Commitments		-		-

Equity:
Common stock, $0.00001 par value, 100,000,000 shares authorized, 16,000,000 and 14,560,000 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively		160		146
Additional paid-up capital		1,078		1,091
Statutory reserve		913		913
Retained earnings		8,553		4,876
Accumulated other comprehensive income		557		543
Total stockholders' equity		11,261		7,569
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	18,726	$	12,647

See accompanying notes to consolidated financial statements

VLOV, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Amounts in thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

Net sales	$	13,882		$	9,309		$	45,823		$	40,013
Cost of sales		8,850			6,276			29,316			25,620
Gross profit		5,032			3,033			16,507			14,393

Operating expenses:
Selling expenses		841			1,315			2,900			2,965
General and administrative expenses		520			632			1,573			2,076
Other operating expenses		-			-			-			2
		1,361			1,947			4,473			5,043

Income from operations		3,671			1,086			12,034			9,350

Other income (expenses):
Interest income		3			5			14			13
Interest expense		(15	)		(19	)		(43	)		(50	)
		(12	)		(14	)		(29	)		(37	)
Income before provision for income taxes		3,659			1,072			12,005			9,313
Provision for income taxes		922			304			3,183			2,364

Net income		2,737			768			8,822			6,949

Other comprehensive income:
Foreign currency translation adjustment		7			160			14			306

Comprehensive income	$	2,744		$	928		$	8,836		$	7,255

Basic and diluted net earnings per share	$	0.17		$	0.05		$	0.56		$	0.48

Weighted average number of common shares outstanding, basic and diluted		16,000,000			14,560,000			15,773,187			14,560,000

See accompanying notes to consolidated financial statements

VLOV, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Nine Months Ended September 30,
	2009			2008
	(unaudited)			(unaudited)
Cash flows from operating activities:

Net income	$	8,822		$	6,949
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		71			78
Write off of property, plant and equipment		-			1
(Increase) decrease in assets:
Accounts receivables		509			(2,032	)
Inventories		(277	)		4,280
Prepaid expenses		(7	)		119
Increase (decrease) in liabilities:
Accounts payable		3,007			(1,971	)
Bills payable, accrued expenses and other payables		(585	)		154
Income and other tax payables		(184	)		(2,793	)
Net cash provided by operating activities		11,356			4,785

Cash flows from investing activities:
Purchases of property, plant and equipment		-			(52	)
Disposals of property, plant and equipment		-			-
Net cash (used in) investing activities		-			(52	)

Cash flows from financing activities:
Pledged bank deposits		88			-
Amount due to/from a director		-			168
Proceeds from debt financing		440			-
Payments of short-term debt		(293	)		-
Payments of dividend		(5,131	)		(3,219	)
Net cash (used in) financing activities		(4,896	)		(3,051	)
Effect of exchange rate changes		5			281
Net increase in cash and cash equivalents		6,465			1,963
Cash and cash equivalents, beginning of year		2,863			2,758

Cash and cash equivalents, end of year	$	9,328		$	4,721

Supplemental disclosure of cash flow information:

Interest paid	$	43		$	50

Income taxes paid	$	2,605		$	2,813

See accompanying notes to consolidated financial statements

VLOV, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.	ORGANIZATION

VLOV Inc. (“VLOV” or the “Company”) was incorporated in Nevada on October 30, 2006 originally under the name “Sino Charter, Inc.” (“Sino Charter”) On February 13, 2009, Sino Charter completed a share exchange transaction with Peng Xiang Peng Fei Investments Limited (“PXPF”), a British Virgin Island limited liability company, and PXPF became a wholly-owned subsidiary of the Company. The share exchange transaction was accounted for as a reverse acquisition and recapitalization and, as a result, the consolidated financial statements of Sino Charter (the legal acquirer) is, in substance, those of PXPF (the accounting acquirer), with the assets and liabilities, and revenues and expenses, of Sino Charter being included effective from the date of the share exchange transaction. Sino Charter, Inc. changed its name to “VLOV Inc.” on March 20, 2009 in connection with the share exchange transaction.

VLOV is in the business of designing, manufacturing and distributing apparel under the brand name “VLOV” in the People’s Republic of China (“China” or the “PRC”). All of the operations are carried out by Jinjiang Yinglin Jinduren Fashion limited (“Yinglin Jinduren”), a company organized in the PRC which the Company controls. VLOV controls Yinglin Jinduren through a series of contractual arrangements between Korea Jinduren (International) Dress Limited (“Korea Jinduren”), a Hong Kong company and the wholly-owned direct subsidiary of PXPF, and Yinglin Jinduren. The contractual arrangements between Korea Jinduren and Yinglin Jinduren enable VLOV to substantially influence the daily operations and financial affairs of Yinglin Jinduren, appoint its senior executives and approve all matters requiring shareholder approval. As a result of these contractual arrangements, which obligate Korea Jinduren to absorb a majority of the risk of loss from the activities of Yinglin Jinduren and enable Korea Jinduren to receive a majority of Yinglin Jinduren’s expected residual returns, VLOV accounts for Yinglin Jinduren as a variable interest entity (“VIE”) under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “Consolidation.” Accordingly, VLOV consolidates the results, assets and liabilities of Yinglin Jinduren.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)	Basis of Presentation and Consolidation

The accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States applicable to interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (which include all significant normal and recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for all periods presented have been made. The accompanying results of operations are not necessarily indicative of the operating results that may be expected for the entire year ending December 31, 2009. These consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto of PXPF for the year ended December 31, 2008 and the pro forma consolidated financial statements and accompanying notes thereto of the Company for the year ended December 31, 2008 filed with the Company’s current report on Form 8-K/A on May 4, 2009.

The consolidated financial statements include the financial statements of the Company, its wholly owned subsidiaries PXPF and Korea Jinduren, and its VIE, Yinglin Jinduren. All significant inter-company transactions and balances between the Company, its subsidiaries and the VIE are eliminated upon consolidation.

(b)	Use of Estimates

Management has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States. Significant areas requiring the use of management estimates relate primarily to returns, sales allowances and customer chargebacks, inventory write-downs and valuation of long-lived assets. Actual results could differ from those estimates.

(c)	Revenue Recognition

Revenue from the sales of goods is recognized on the transfer of significant risks and rewards of ownership, which generally coincides with the time when the goods are delivered and the title has passed to the customers. Revenue excludes value-added tax and is net of trade discounts and allowances.

(d)	Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents comprise cash at bank and on hand and demand deposits with banks.

(e)	Accounts Receivable

Accounts receivable, which are unsecured, are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company evaluates the collectability of its accounts receivable based on a combination of factors, including customer credit-worthiness and historical collection experience. Management reviews the receivable aging and adjusts the allowance based on historical experience, financial condition of the customer and other relevant current economic factors. As of September 30, 2009, all of the trade receivable balances were aged less than 90 days and management has determined that no allowance for uncollectible amounts is required, the same as of December 31, 2008.

(f)	Depreciation and Amortization

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Depreciation of property, plant and equipment is computed using the straight-line method based on the following estimated useful lives:

Buildings	30 years
Furniture, fixtures and equipment	5 years
Motor vehicles	5 years
Office equipment	5 years
Plant and machinery	5 to 15 years

(g)	Inventories

Inventories are stated at the lower of cost or market value, determined by the weighted average method. Work-in-progress and finished goods inventories consist of raw materials, direct labor and overhead associated with the manufacturing process.

(h)	Foreign Currency Translation

The Company’s functional currency is Renminbi (“RMB”) and its reporting currency is U.S. dollars. The Company’s balance sheet accounts are translated using the closing exchange rate in effect at the balance sheet dates and operating accounts are translated using the average exchange rate prevailing during the respective periods. Equity accounts are translated using the historical rate as incurred. Translation gains and losses are deferred and accumulated as a component of accumulated other comprehensive income in shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred.

(j)	Land Use Right

All land in the PRC is state-owned and cannot be sold to any individual or company. However, the government grants “land use right” to allow individuals or companies to use land.

The Company acquired land use right on March 25, 2004 for a total amount of US$259,000. Such land use right is for 50 years and expires in 2054.

Land use right is stated at cost less accumulated amortization and impairment losses. Amortization is calculated on the straight-line method over the estimated useful life of 50 years.

The Company’s land use right, which is considered intangible asset, is reviewed at least annually to determine whether its carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. As of September 30, 2009, the Company expects such asset to be asset fully recoverable.

(k)	Long-Lived Assets

The Company estimates the future undiscounted cash flows to be derived from an asset to assess whether or not impairment has occurred when events or circumstances indicate that the carrying value of a long-lived asset may be impaired. If the carrying value exceeds the Company’s estimate of future undiscounted cash flows, the Company then calculates the impairment as the excess of the carrying value of the asset over the Company’s estimate of its fair market value.

(l)	Income Taxes

The Company is mainly subject to income taxes in the PRC. Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences affect the income tax and deferred tax provisions in the period in which such determination is made.

The Company accounts for income taxes under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740 “Income Taxes” (“ASC 740”). Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Based on our evaluation, we have concluded that there are no significant uncertain tax positions, as defined by ASC 740, that require recognition in our financial statements. Our evaluation was performed for the tax year ended December 31, 2008 which was examined by major tax jurisdictions (PRC). We are in the process of the evaluation for the tax year ending December 31, 2009, which remains subject to examination by major tax jurisdictions (PRC) as of September 30, 2009. We may from time to time be assessed interest or penalties by major tax jurisdictions. In the event we receive an assessment for interest and/or penalties, it will be classified in the financial statements as tax expense.

(m)	Comprehensive Income

The Company has adopted the provisions of FASB ASC Topic 220, “Comprehensive Income” (“ASC 220”). ASC 220 establishes standards for the reporting and presentation and disclosure of comprehensive income, its components and accumulated balances in a full set of general purpose financial statements. ASC 220 defines comprehensive income or loss to include all changes in equity except those resulting from investments by owners and distributions to owners, including adjustments to minimum pension liabilities, accumulated foreign currency translation, and unrealized gains or losses on marketable securities.

The Company’s only component of other comprehensive income is foreign currency translation gain (loss). The foreign currency translation gain for the three and nine months ended September 30, 2009 and 2008 were approximately $7,000, $160,000, $14,000and $306,000, respectively. Accumulated other comprehensive income is recorded as a separate component of shareholders’ equity.

(n)	Advertising Costs

Advertising costs are expensed in the period in which the advertisements are first run or over the life of the endorsement contract. Advertising costs were approximately $748,000 and $1,231,000 for the three months and $2,191,000 and $2,533,000 for the nine months ended September 30, 2009 and 2008, respectively. Advertising costs include advertising subsidy expense which is accrued based on the terms in effect with distributors and paid when all attaching conditions are completed.

(o)	Shipping and Handling Costs

Shipping and handling costs are expensed as incurred and included in cost of sales.

(p)	Research and Development Costs

The Company charges all product design and development costs to expense when incurred. Product design and development costs aggregated approximately $340,000, $511,000, $1,121,000 and $1,764,000 for the three months and nine months ended September 30, 2009 and 2008, respectively.

(q)	Fair Value of Financial Instruments

The carrying amount of the Company’s consolidated financial instruments, which principally include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximates fair value due to the relatively short maturity of such instruments.

The carrying amount of the Company’s short-term borrowings approximates the fair value based upon current rates and terms available to the Company for similar debt.

(r)	Recently Adopted Accounting Pronouncements

The Company adopted FASB ASC Topic 820 “Fair Value Measurements and Disclosures” (“ASC 820”) and Topic 825-10 “Financial Instruments” (“ASC 825-10”) and on January 1, 2008. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level I - Quoted prices (unadjusted) in active markets for identical asset or liabilities that the Company has the ability to access as of the measurement date.

Level II - - Inputs other than quoted prices included within Level I that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

Level III - - Unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.

Since the issuance of ASC 820, the FASB has issued several pronouncements to clarify the application of ASC 820. These pronouncements apply to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with ASC 820. In April 2009, the FASB issued ASC Topic 820-10-65-4, “Transaction Related to FASB Staff Position FAS 157-4 Determining the Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“ASC 820-10-65-4”), which provides additional guidance for estimating fair value in accordance with ASC 820, when the volume and level of activity for the asset or liability have significantly decreased. ASC 820-10-65-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. ASC 820-10-65-4 is effective for interim and periods ending after June 15, 2009, and shall be applied prospectively.

In February 2007, the FASB issued ASC 825-10, “Financial Instruments”, which provides companies with an option to report selected financial assets and liabilities at fair value. ASC 825-10’s objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. Generally accepted accounting principles have required different measurement attributes for different assets and liabilities that can create artificial volatility in earnings. ASC 825-10 helps to mitigate this type of accounting-induced volatility by enabling companies to report related assets and liabilities at fair value, which would likely reduce the need for companies to comply with detailed rules for hedge accounting. ASC 825-10 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. ASC 825-10 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the Company’s choice to use fair value on its earnings. ASC 825-10 also requires companies to display the fair value of those assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. ASC 825-10 does not eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in ASC 820 and ASC 825. The Company adopted ASC 825-10 on January 1, 2008, but did not elect the fair value option for any financial assets or liabilities. Accordingly, the adoption of ASC 825-10 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.

The Company’s financial assets mainly consist of cash and cash equivalents, and accounts receivables. The fair values of the financial assets approximate their book value due to short maturities. Therefore, the adoption of the above accounting principles, as they became or will become applicable to the Company, had no significant impact on the measurement of the financial assets.

In December 2007, the FASB issued ASC Topic 805, “Business Combinations” (“ASC 805”), which requires an acquirer to recognize in its financial statements as of the acquisition date (i) the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree, measured at their fair values on the acquisition date, and (ii) goodwill as the excess of the consideration transferred plus the fair value of any non-controlling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets acquired. Acquisition-related costs, which are the costs an acquirer incurs to effect a business combination, will be accounted for as expenses in the periods in which the costs are incurred and the services are received, except that costs to issue debt or equity securities will be recognized in accordance with other applicable GAAP. ASC 805 makes significant amendments to other Statement of Financial Accounting Standards and other authoritative guidance to provide additional guidance or to conform the guidance in that literature to that provided in ASC 805. ASC 805 also provides guidance as to what information is to be disclosed to enable users of financial statements to evaluate the nature and financial effects of a business combination. ASC 805 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008. The Company adopted ASC 805 on January 1, 2009. The adoption of ASC 805 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.

In December 2007, the FASB issued ASC 805 “Business Combinations” and 810 “Consolidation” (“ASC 810”), which require that ownership interests in subsidiaries held by parties other than the parent, and the amount of consolidated net income, be clearly identified, labeled and presented in the consolidated financial statements. ASC 805 and ASC 810 also require that once a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary be initially measured at fair value. Sufficient disclosures are required to clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. ASC 805 and ASC 810 amend ASC 260 to provide that the calculation of earnings per share amounts in the consolidated financial statements will continue to be based on the amounts attributable to the parent. ASC 805 and ASC 810 are effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, and require retroactive adoption of the presentation and disclosure requirements for existing minority interests. All other requirements are applied prospectively. The Company adopted ASC 805 and ASC 810 on January 1, 2009. The adoption of ASC 805 and ASC 810 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.

In March 2008, the FASB issued ASC Topic 815-10-50, “Disclosures about Derivative Instruments and Hedging Activities”(“ASC 815-10-50”). ASC Topic 815-10-50 amends and expands the disclosure requirements of ASC 815, “Accounting for Derivative Instruments and Hedging Activities”. The objective of ASC 815-10-50 is to provide users of financial statements with an enhanced understanding of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under ASC 815 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. ASC 815-10-50 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. ASC 815-10-50 applies to all derivative financial instruments, including bifurcated derivative instruments (and non-derivative instruments that are designed and qualify as hedging instruments and related hedged items accounted for under ASC 815 and its related interpretations. ASC 815-10-50 also amends certain provisions of ASC 815. ASC 815-10-50 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. ASC 815-10-50 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company adopted ASC 815-10-50 on January 1, 2009. The adoption of ASC 815-10-50 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.

In June 2008, the FASB ratified ASC 815-40-25, “Derivative and Hedging, Contracts in Entity’s Own Equity, Recognition” (“ASC 815-40-25”) ASC 815-40-25 mandates a two-step process for evaluating whether an equity-linked financial instrument or embedded feature is indexed to the entity’s own stock. Warrants that a company issues that contain a strike price adjustment feature, upon the adoption of ASC 815-40-25, results in the instruments no longer being considered indexed to the company’s own stock. Accordingly, adoption of ASC 815-40-25 will change the current classification (from equity to liability) and the related accounting for such warrants outstanding at that date. ASC 815-40-25 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company adopted ASC 815-40-25 on January 1, 2009. The adoption of ASC 815-40-25 did not have any impact on the Company’s consolidated financial statement presentation or disclosures. The Company adopted ASC 815-40-25 on January 1, 2009. The adoption of ASC 815-40-25 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.

In April 2009, the FASB issued Topic ASC 825-10-65-1, “Transition Related to FAS FSP 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments” (“ASC 825-10-65-1”), which requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. ASC 825-10-65-1 requires those disclosures in summarized financial information at interim reporting. The adoption of ASC 825-10-65-1 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.

In April 2009, the FASB issued ASC Topic 82-10-65-4, “Transition Related to FASB Staff Position FAS FSP 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset and Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“ASC 82-10-65-4”). This pronouncement emphasizes that even if there has been a significant decrease in the volume and level of activity, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants. The pronouncement provides a number of factors to consider when evaluating whether there has been a significant decrease in the volume and level of activity for an asset or liability in relation to normal market activity. In addition, when transactions or quoted prices are not considered orderly, adjustments to those prices based on the weight of available information may be needed to determine the appropriate fair value. The pronouncement also requires increased disclosures. This pronouncement is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The adoption of this pronouncement at June 30, 2009 did not have a material impact on the Company’s results of operations or financial position.

In May 2009, the FASB issued ASC Topic 855, “Subsequent Events” (“ASC 855”). ASC 855 establishes the principles and requirements for the disclosure of subsequent events including the period after the balance sheet date during which management of a reporting entity will evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity will recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity will make about events or transactions that occurred after the balance sheet date. ASC 855 is effective for interim or annual periods ending after June 15, 2009, and should be applied prospectively. Note 16 sets forth the Company’s evaluation of significant events that occurred after September 30, 2009 and as of November 12, 2009, the date the interim financial statements as of and for the three-months and nine-months ended September 30, 2009 were issued.

Management does not believe that any other recently issued, but not yet effective, accounting standards or pronouncements, if currently adopted, would have a material effect on the Company’s consolidated financial statement presentation or disclosures.

3.	PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are summarized as follows (in thousands):

	September 30,		December 31,
	2009		2008

Buildings	$	914	$	914
Furniture, fixtures and equipment		84		84
Motor vehicles		196		196
Office equipment		24		24
Plant and machinery		235		235

Total property, plant and equipment		1,453		1,453
Less: accumulated depreciation		(450)		(386	)
	$	1,003	$	1,067

Depreciation expense was approximately $20,000, $26,000 for the three months ended September 30, 2009 and 2008, respectively, and $65,000 and $72,000 for the nine months ended September 30, 2009 and 2008, respectively.

4.	LAND USE RIGHT

Land use right is summarized as follows (in thousands):

	September 30,		December 31,
	2009		2008

Land use right	$	315		$	315
Less : accumulated amortization		(50)			(43	)
	$	265		$	272

Amortization expense was approximately $2,000 per quarter for the three months and nine months ended September 30, 2009 and 2008, respectively. Amortization expense for each of the next 5 years is expected to be $8,000.

5.	INVENTORIES

Inventories consist of the following (in thousands):

	September 30,		December 31,
	2009		2008

Raw materials	$	166	$	262
Work in process		444		23
Finished goods		180		229
	$	790	$	514

6.	ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables are summarized as follows (in thousands):

	September 30,		December 31,
	2009		2008

Accrued salaries and wages	$	114	$	120
Accrued electricity		3		4
Accrued professional fee		30		-
Advertising subsidies payables		105		419
	$	252	$	543

7.	RELATED PARTY TRANSACTIONS

The amount due to a director is unsecured, interest-free and repayable on demand.

The Company has been granted the rights to use several trademarks which are owned by the Company's Chief Executive Officer and which applications are pending. However, the Company has not utilized the use of these trademarks. The Company's Chief Executive Officer is in the process of transferring these trademarks to the Company.

8. SHORT-TERM BORROWINGS

The carrying amounts of the Company’s borrowings are as follows (in thousands):

	September 30,					December 31,
	2009					2008
			Interest					Interest
	Amounts		Rate		Due date	Amounts		Rate		Due date
Bank loan 1	$	294	7.43	%	11/30/2009	$	293	11.21	%	1/8/2009
Bank loan 2		293	7.43	%	1/16/2010		294	7.43	%	11/30/2009
Bank loan 3		147	7.97	%	3/23/2010		-
	$	734				$	587

As of September 30, 2009, the short-term borrowings were secured by the personal guarantee granted by the Company’s Chief Executive Officer.

9.	INCOME TAXES

The provisions for income tax expense were as follows (in thousands):

	Nine Months Ended September 30,
	2009		2008

PRC enterprise income tax – current	$	3,183	$	2,364

The Company is mainly subject to income taxes in the PRC and provision for the PRC corporate income tax was calculated based on the statutory tax rate of 25% on taxable income effective from January 1, 2008 pursuant to the PRC Enterprise Income Tax Law passed by the Tenth National People’s Congress. For the nine months period ended September 30, 2009, the income tax provision also included additional income tax provision for the year ended 2008 because of a change in management’s estimate of the tax liability for 2008 based on the information that became available during 2009.

The applicable rates of Hong Kong profit tax for the three months periods ended September 30, 2009 and 2008 were 16.5% and 17.5%, respectively. However, no provision for Hong Kong profit tax has been made for the three months and nine months ended September 30, 2009 and 2008 as the Company did not generate any taxable profits under the relevant Hong Kong tax laws during the periods.

PXPF is a company incorporated in the BVI and is fully exempt from the BVI’s domestic corporate tax.

As of the balance sheet dates presented, there were no deferred tax assets or liabilities.

10. STATUTORY RESERVES

Under PRC regulations, Yinglin Jinduren should pay dividends only out of its accumulated profits, if any, determined in accordance with PRC GAAP. In addition, Yinglin Jinduren is required to set aside at least 10% of its after-tax net profits each year, if any, to fund the statutory reserves until the balance of such reserves reaches 50% of Yinglin Jinduren’s registered capital. As of December 31, 2007, the balance of Yinglin Jinduren’s statutory reserves reached 50% of its registered capital. Thus, no further profits are required to be set aside for the statutory reserves. The statutory reserves are not distributable as cash dividends to the Company.

11.	LEASE COMMITMENTS

The Company leases certain facilities under, non-cancelable leases and year-to-year leases. These leases are accounted for as operating leases. Rent expense amounted to $19,000 and $11,000, $41,000 and $25,000 for the three months and nine months ended September 30, 2009 and 2008 respectively.

Future minimum payments under long-term, non-cancelable leases as of September 30, 2009 are as follows:

	Future minimum payments

Three months ending December 31, 2009	$	7,000

There are no other non-cancelable leases for the year ending December 31, 2010 and thereafter.

12.	BUSINESS AND CREDIT CONCENTRATIONS

The Company operates in the fashion apparel industry and generates all of its sales in the PRC. The fashion apparel industry is impacted by the general economy. Changes in the marketplace would significantly affect management’s estimates and the Company’s performance.

The Company has the following concentrations of business with each customer constituting greater than 10% of the Company’s sales:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008

Customers:
Customer A		17.57	%		25.65	%		19.36	%		26.35	%
Customer B		13.86	%		12.59	%		13.54	%		12.71	%
Customer C		11.53	%		10.25	%		11.17	%		10.47	%
Customer D		10.55	%		15.34	%		11.66	%		15.29	%
Customer E		10.11	%		*			10.09	%		*

The Company has the following concentrations of business with each vendor constituting greater than 10% of the Company’s purchases:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2009			2008		2009		2008

Vendors:
Vendor A		11.06	%		29.98%		10.64%		45.85%
Vendor B		11.02	%		18.67%		13.12%		16.30%
Vendor C		10.18	%		*		*		*

* Representing concentrations of business with those customers constituting less than 10% of the Company’s sales or purchases with those vendors constituting less than 10% of the Company’s purchases for the respective periods.

Such concentrations make the Company vulnerable to a near-term severe impact should relationships with these customers and/or vendors be terminated.

13.	EARNINGS PER SHARE

Basic and diluted earnings per share (“EPS”) for the three and nine months ended September 30, 2009 and 2008 were determined by dividing net income for the three-month and nine-month periods by the respective weighted average number of common shares outstanding.

14.	BENEFIT PLAN

Pursuant to the relevant regulations of the PRC government, Yinglin Jinduren participates in a local municipal government retirement benefits scheme (the “Scheme”), whereby Yinglin Jinduren is required to contribute a certain percentage of the basic salaries of its employees to the Scheme to fund their retirement benefits. Contributions under the Scheme are charged to the income statement as incurred. Yinglin Jinduren’s contributions to the Scheme amounted to $44,000 and $43,000 for the three months ended September 30, 2009 and 2008, respectively, and $133,000 and $132,000 for the nine months ended September 30, 2009 and 2008, respectively.

15.	NEW ACCOUNTING PROUNOUNCEMENTS

In May 2008, the FASB issued ASC Topic 105 “Generally Accepted Accounting Principles” (“ASC 105”). ASC 105 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). The Statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB issued ASC Topic 860-20, "Sales of Financial Assets, SFAS 166" (“ASC 860-20”). ASC 820-20 is intended to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial statements regarding transfers of financial assets, including the effects of a transfer on its financial position, financial performance, and cash flows, and the transferor's continuing involvement, if any, in the transferred financial assets. This statement must be applied as of the beginning of the Company’s first annual reporting period that begins after November 15, 2009. The Company does not expect the adoption of ASC 820-20 to have a material impact on its results of operations, financial condition or cash flows.

In June 2009, the FASB issued ASC Topic 810-10, "Amendments to FASB Interpretation No. 46(R)" (“ASC 810-10”). ASC 810-10 is intended to (1) address the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” as a result of the elimination of the qualifying special-purpose entity concept in ASC 860-20, and (2) constituent concerns about the application of certain key provisions of Interpretation 46(R), including those in which the accounting and disclosures under the Interpretation do not always provided timely and useful information about an enterprise's involvement in a variable interest entity. This statement must be applied as of the beginning of the Company’s first annual reporting period that begins after November 15, 2009. The Company does not expect the adoption of 810-10 to have a material impact on its results of operations, financial condition or cash flows.

In June 2009, the FASB issued ASC Topic 105-10, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles" (“ASC 105-10”). ASC 105-10 will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by non-governmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of Federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company does not expect the adoption of ASC 105-10 to have a material impact on its results of operations, financial condition or cash flows.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the United States Securities and Exchange Commission did not or are not believed to have a material impact on the Company's present or future consolidated financial statements.

16.	SUBSEQUENT EVENTS

On October 27, 2009, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with several accredited investors (collectively the “Purchasers”) pursuant to which the Company agreed to issue and sell up to 2,797,203 shares of Company’s series A convertible preferred stock (the “Preferred Shares”) to accredited investors at $2.86 per share for an aggregate purchase price of up to $8 million, and to issue warrants (the “Warrants”) to purchase up to 1,398,602 shares of the Company’s common stock, par value $0.00001 per share (“Common Stock”), for no additional consideration. The Purchase Agreement contemplates an initial closing of $4 million (the “Initial Closing”), and a final closing of the balance (the “Final Closing”). At the Initial Closing on October 27, 2009, the Company issued to the Purchasers 1,446,252 Preferred Shares and Warrants to purchase up to 723,126 shares of Common Stock for gross proceeds of approximately $4.1 million. The Company is anticipating the Final Closing to take place on or after November 13, 2009.

The Purchase Agreement includes customary representations and warranties by each party thereto. The Company is required to register the Common Stock underlying the Preferred Shares and Warrants with the SEC for resale by the Purchasers within 30 days after the Final Closing and to have the registration statement declared effective within 90 days thereafter (or 150 days if the registration statement receives full review). If the registration statement is not timely filed or declared effective, the Company will be subject to liquidated damages of 1% of the Purchasers’ aggregate purchase price per month, up to 10%, and pro-rated for partial periods.

The above transaction by the Company is considered a “nonrecognized subsequent event” as defined by ASC 855. Management is in the process of determining the impact of this transaction on the financial statements as of December 31, 2009 and beyond.

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

The following management’s discussion and analysis should be read in conjunction with our consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this item. In addition to historical information, the following discussion contains certain forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as “may, “will,” “could,” “expect,, “anticipate,” “intend,” “believe, “estimate,” “plan,” “predict” and similar terms or terminology, or the negative of such terms or other comparable terminology. Although we believe the expectations expressed in these forward-looking statements are based on reasonable assumptions within the bound of our knowledge of our business, our actual results could differ materially from those discussed in these statements. Factors that could contribute to such differences include, but are not limited to, those discussed in the “Risk Factors” section of the Company's current report on Form 8-K filed with the SEC on February 13, 2009. We undertake no obligation to update publicly any forward-looking statements for any reason even if new information becomes available or other events occur in the future.

Our financial statements are prepared in U.S. Dollars and in accordance with accounting principles generally accepted in the United States. See “Exchange Rates” below for information concerning the exchanges rates at which Renminbi were translated into U.S. Dollars at various pertinent dates and for pertinent periods.

In this Form 10-Q, references to “we,” “our, “us,” the "Company”, or the “Registrant” refer to VLOV Inc., a Nevada corporation, its subsidiary and affiliated entities.

Overview

VLOV Inc. (“VLOV” or the “Company”), formerly known as Sino Charter, Inc., was incorporated in Nevada on October 30, 2006. Prior to February 13, 2009, the Company was a public reporting “shell company,” as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended. On February 13, 2009, the Company entered into a share exchange transaction with Peng Xiang Peng Fei Investments Limited (“Peng Xiang”), a British Virgin Islands company, and acquired its apparel business in the People’s Republic of China (“China” or “PRC”), which is marketed and distributed apparel under the brand name “V·LOV.” The share exchange transaction closed on February 13, 2009, and Peng Xiang became a wholly-owned subsidiary of the Company.

Peng Xiang is a holding company that, through its wholly-owned subsidiary, Korea Jinduren (International) Dress Limited (“Korea Jinduren”), a Hong Kong company, controls Jinjiang Yinglin Jinduren Fashion Limited (“Yinglin Jinduren”), a PRC company, by a series of contractual arrangements. Yinglin Jinduren holds the government licenses and approvals necessary to operate the apparel business in China. Neither the Company nor its direct and indirect subsidiaries own any equity interests in Yinglin Jinduren, but control and receive the economic benefits of its business operations through contractual arrangements. Through Korea Jinduren, the Company has contractual arrangements with Yinglin Jinduren and its owners to provide consulting and other general business operation services on an exclusive basis. Through these contractual arrangements, the Company also has the ability to substantially influence the daily operations and financial affairs of Yinglin Jinduren. As a result of these contractual arrangements, which enable the Company to control Yinglin Jinduren and to receive, through Korea Jinduren, all of its net profits, the Company is considered the primary beneficiary of Yinglin Jinduren. Accordingly, the Company consolidates the results, assets and liabilities of Yinglin Jinduren in its financial statements.

On March 20, 2009, the Company changed its name to “VLOV Inc.” to better reflect the direction and business of the Company after the share exchange transaction with Peng Xiang.

Subsequent Event.

On October 27, 2009, we sold and issued 1,446,252 shares of our series A convertible preferred stock (the “Preferred Shares”) for approximately $4.1 million in gross proceeds, and issued warrants to purchase up to 723,126 shares of our common stock for no additional consideration, to several accredited investors in a private placement pursuant to Regulation D promulgated under the Securities Act of 1933, as amended.

Critical Accounting Policies

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements that have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported net sales and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in note 1 to our financial statements under the section above titled “Financial Statements,” we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis:

Revenue Recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold and services provided in the normal course of business, net of discounts and sales related taxes. Revenue from sale of goods is recognized when the goods are delivered and title has passed.

Accounts Receivable

Accounts receivable, which are unsecured, are stated at the amount the Company expects to collect. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that have been experienced in the past. As of September 30, 2009, all of the trade receivable balances were aged less than 90 days and management has determined that no allowance for uncollectible amounts is required.

Depreciation and Amortization

Buildings	30 years
Furniture, fixtures and equipment	5 years
Motor vehicles	5 years
Office equipment	5 years
Plant and machinery	5 to 15 years

Income Taxes

The Company is mainly subject to income taxes in the PRC. While we believe we have adequately provided for all tax positions, amounts asserted by tax authorities could be greater or less than our accrued position. The Company has concluded all PRC corporate income tax matters through fiscal year 2008. We do not anticipate that total gross unrecognized tax benefits will change significantly as a result of full or partial settlement of this or other audits within the next twelve months.

The Company accounts for income taxes under ASC Topic 740, “Income Taxes” (“ASC 740”) Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Foreign Currency Translation

The Company’s functional currency is Renminbi (“RMB”) and its reporting currency is U.S. dollars. The Company’s balance sheet accounts are translated using the closing exchange rate in effect at the balance sheet date and operating accounts are translated using the average exchange rate prevailing during the quarter. Equity accounts are translated using the historical rate as incurred. Translation gains and losses are deferred and accumulated as a component of accumulated other comprehensive income in shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred.

Results of Operations

	Three Month Periods Ended September 30,								Nine Month Periods Ended September 30,
	2009				2008				2009				2008
	(Amounts in thousands, in U.S. Dollars, except for percentages)								(Amounts in thousands, in U.S. Dollars, except for percentages)
Sales	$	13,882	100.00	%	$	9,309	100.00	%	$	45,823	100.00	%	$	40,013	100.00	%
Gross Profit	$	5,032	36.25	%	$	3,033	32.58	%	$	16,507	36.02	%	$	14,393	35.97	%
Operating Expense	$	1,361	9.80	%	$	1,947	20.92	%	$	4,473	9.76	%	$	5,043	12.60	%
Income From Operations	$	3,671	26.45	%	$	1,086	11.66	%	$	12,034	26.26	%	$	9,350	23.37	%
Other Expenses/(Income)	$	12	0.09	%	$	14	0.15	%	$	29	0.06	%	$	37	0.09	%
Income tax expenses	$	922	6.64	%	$	304	3.27	%	$	3,183	6.95	%	$	2,364	5.91	%
Net Income	$	2,737	19.72	%	$	768	8.24	%	$	8,822	19.25	%	$	6,949	17.37	%

Sales for the three months ended September 30, 2009 were $13,882,000, an increase of 49.12% from $9,309,000 for the same period in 2008, while sales for the nine months ended September 30, 2009 were $45,823,000, an increase of 14.52% from $40,013,000 for the same period of 2008. We generate revenue primarily from the production and sale of apparels in China which are sold through 734 Point-of-Sales (“POS”) spread across 11 provinces that are owned and operated by or for our distributors. The increase in our sales for the nine months ended September 30, 2009 was primarily attributable to our marketing efforts under the VLOV brand and the rapid expansion of our sales network period-over-period.

The following table sets forth a breakdown of our total sales revenue, by provinces, for the periods indicated:

	Three Month Periods Ended September 30,													Nine Month Periods Ended September 30,
	2009					2008								2009					2008
	(Amounts in thousands, in U.S. Dollars, except for percentages)													(Amounts in thousands, in U.S. Dollars, except for percentages)
	$		% of total sales revenue			$		% of total sales revenue			Growth in 2009 compared with 2008			$		% of total sales revenue			$		% of total sales revenue			Growth in 2009 compared with 2008

Beijing	$	641		4.62	%	$	310		3.33	%		106.77	%	$	2,108		4.60	%	$	1,308		3.27	%		61.16	%
Zhejiang		2,440		17.58	%		2,388		25.65	%		2.18	%		8,873		19.36	%		10,544		26.35	%		(15.85)	%
Shandong		1,600		11.53	%		954		10.25	%		67.71	%		5,119		11.17	%		4,188		10.47	%		22.23	%
Jiangxi		1,465		10.55	%		1,428		15.34	%		2.59	%		5,342		11.66	%		6,119		15.29	%		(12.70)	%
Yunnan		1,404		10.11	%		887		9.53	%		58.29	%		4,622		10.09	%		3,699		9.24	%		24.95	%
Shaanxi		1,001		7.21	%		540		5.80	%		85.37	%		3,300		7.20	%		2,377		5.94	%		38.83	%
Liaoning		1,135		8.18	%		490		5.26	%		131.63	%		3,256		7.11	%		2,093		5.23	%		55.57	%
Hubei		1,923		13.85	%		1,172		12.59	%		64.08	%		6,205		13.54	%		5,087		12.71	%		21.98	%
Henan		1,006		7.25	%		546		5.87	%		84.25	%		3,328		7.26	%		2,224		5.56	%		49.64	%
Guangxi		945		6.81	%		505		5.42	%		87.13	%		3,101		6.77	%		2,190		5.47	%		41.60	%
Sichuan		228		1.64	%		n.a.*		n.a.*			n.a.*			228		0.50	%		n.a.*		n.a.*	%		n.a.*	%
Others		94		0.67	%		89		0.96	%		5.62	%		341		0.74	%		184		0.47	%		85.33	%
Total Net Sales	$	13,882		100.00	%	$	9,309		100.00	%		49.12	%	$	45,823		100.00	%	$	40,013		100.00	%		14.52	%

* Not applicable as the Company engaged the Sichuan distributor during the three-month period ended September 30, 2009

Cost of Sales and Gross Profit Margin

The following table sets forth the components of our cost of sales and gross profit both in absolute amount and as a percentage of total net sales for the periods indicated.

	Three Month Periods Ended September 30,								Nine Month Periods Ended September 30,
	2009				2008				2009				2008
	(Amounts in thousands, in U.S. Dollars, except for percentages)								(Amounts in thousands, in U.S. Dollars, except for percentages)
Total Net Sales	$	13,882	100.00	%	$	9,309	100.00	%	$	45,823	100.00	%	$	40,013	100.00	%
O.E.M. Finished Goods		8,124	58.52	%		5,224	56.12	%		26,798	58.48	%		19,781	49.44	%
Raw Materials		517	3.72	%		691	7.42	%		1,706	3.72	%		3,867	9.66	%
Labor		165	1.19	%		276	2.96	%		643	1.40	%		557	1.39	%
Outsource Production Costs		-	-	%		-	-	%		-	-	%		832	2.08	%
Other and Overhead		44	0.32	%		85	0.92	%		169	0.38	%		583	1.46	%
Total Cost of Sales		8,850	63.75	%		6,276	67.42	%		29,316	63.98	%		25,620	64.03	%
Gross Profit	$	5,032	36.25	%	$	3,033	32.58	%	$	16,507	36.02	%	$	14,393	35.97	%

Raw materials cost accounted for 3.72% of our total net sales for both of the three months and nine months periods ended September 30, 2009, compared to 7.42% and 9.66% for the same periods ended September 30, 2008, respectively. Labor cost accounted for 1.19% and 1.40% of our total net sales for the three months and nine months ended September 30 2009, respectively, a decrease of 1.77% and an increase of 0.01%, respectively, compared to the same periods in 2008, because the Company had more reliance on out-sourced O.E.M. goods for the three months ended September 30, 2009. O.E.M. finished goods cost accounted for 58.52% and 58.48% of our net sales for the three months and nine months periods ended September 30, 2009 respectively, compared to 56.12% and 49.44% for the same periods ended September 30, 2008, respectively. The increase resulted from more reliance on O.E.M. goods.

Total cost of sales for the three months and nine months ended September 30, 2009 were $8,850,000 and $29,316,000, respectively, an increase of 41.01% from $6,276,000 for the same three-month period in 2008 and an increase of 14.43% from $25,620,000 for the same nine-month period in 2008. As a percentage of total net sales, our cost of sales decreased to 63.75% and 63.98% of total net sales for the three months and nine months ended September 30, 2009 respectively, down from approximately 67.42% and 64.03% of total net sales for the same three-month and nine-month periods in 2008, respectively.

The following tables set forth our total net sales, cost of sales, gross profit and gross margin of the geographic market segments for the periods indicated.

	Three Months Ended September 30,

	2009									2008
	Net Sales		Cost of sales		Gross profit		Gross margin			Net Sales		Cost of sales		Gross profit		Gross margin
	(Amounts in thousands, in U.S. Dollars, except for percentages)
Beijing	$	641	$	409	$	232		36.19	%	$	310	$	209	$	101		32.58	%
Zhejiang		2,440		1,555		885		36.27	%		2,388		1,648		740		30.99	%
Shandong		1,600		1,020		580		36.25	%		954		637		317		33.23	%
Jiangxi		1,465		934		531		36.25	%		1,428		961		467		32.70	%
Yunnan		1,404		895		509		36.25	%		887		600		287		32.36	%
Shaanxi		1,001		638		363		36.26	%		540		363		177		32.78	%
Liaoning		1,135		724		411		36.21	%		490		337		153		31.22	%
Hubei		1,923		1,226		697		36.25	%		1,172		790		382		32.59	%
Henan		1,006		641		365		36.28	%		546		371		175		32.05	%
Guangxi		945		602		343		36.30	%		505		339		166		32.87	%
Sichuan		228		146		82		35.96	%		n.a.*		n.a.*		n.a.*		n.a.*	%
Others		94	$	60		34		36.17	%		89		21		68		76.40	%
Total	$	13,882	$	8,850	$	5,032		36.25	%	$	9,309	$	6,276	$	3,033		32.58	%

* Not applicable as the Company engaged the Sichuan distributor during the three-month period ended September 30, 2009.

	Nine Months Ended September 30,

	2009									2008
	Net Sales		Cost of sales		Gross profit		Gross margin			Net Sales		Cost of sales		Gross profit		Gross margin
	(Amounts in thousands, in U.S. Dollars, except for percentages)
Beijing	$	2,108	$	1,348	$	760		36.05	%	$	1,308	$	854	$	454		34.71	%
Zhejiang		8,873		5,675		3,198		36.04	%		10,544		6,703		3,841		36.43	%
Shandong		5,119		3,274		1,845		36.04	%		4,188		2,701		1,487		35.51	%
Jiangxi		5,342		3,417		1,925		36.04	%		6,119		3,924		2,195		35.87	%
Yunnan		4,622		2,956		1,666		36.05	%		3,699		2,383		1,316		35.58	%
Shaanxi		3,300		2,111		1,189		36.03	%		2,377		1,534		843		35.46	%
Liaoning		3,256		2,083		1,173		36.03	%		2,093		1,351		742		35.45	%
Hubei		6,205		3,969		2,236		36.04	%		5,087		3,237		1,850		36.37	%
Henan		3,328		2,128		1,200		36.06	%		2,224		1,415		809		36.38	%
Guangxi		3,101		1,984		1,117		36.02	%		2,190		1,401		789		36.03	%
Sichuan		228		146		82		35.96	%		n.a.*		n.a.*		n.a.*		n.a.*	%
Others		341		225		116		34.02	%		184		117		67		36.41	%
Total	$	45,823	$	29,316	$	16,507		36.02	%		40,013	$	25,620	$	14,393		35.97	%

* Not applicable as the Company engaged the Sichuan distributor during the three-month period ended September 30, 2009.

Overall gross margin for the three months and nine months ended September 30, 2009 was 36.25% and 36.02%, respectively, which increased from 32.58% and 35.97% for the same periods in 2008, respectively. Our gross margin increased due to an increase in average selling price from approximately RMB80 in 2008 to RMB96 in 2009.

Selling, General and Administrative Expenses

	Three Months Ended September 30,										Nine Months Ended September 30,
	2009					2008					2009					2008
	$		% of Total Net Sales			$		% of Total Net Sales			$		% of Total Net Sales			$		% of Total Net Sales
	(Amounts in thousands, in U.S. Dollars, except for percentages)										(Amounts in thousands, in U.S. Dollars, except for percentages)
Gross Profit	$	5,032		36.25	%	$	3,033		32.58	%	$	16,507		36.02	%	$	14,393		35.97	%
Operating Expenses:
Selling Expenses		841		6.06	%		1,315		14.13	%		2,900		6.33	%		2,965		7.41	%
General and Administrative Expenses		520		3.74	%		632		6.79	%		1,573		3.43	%		2,078		5.19	%
Total		1,331		9.80	%		1,947		20.92	%		4,443		9.76	%		5,043		12.60	%
Income from Operations	$	3,701		26.45	%	$	1,086		11.66	%	$	12,034		26.26	%	$	9,350		23.37	%

Selling expenses for the three months ended September 30, 2009 decreased by 36.05% to $841,000 as compared to the same period in 2008, and decreased by 2.19% to $2,900,000 for the nine months ended September 30, 2009 as compared to for the same periods in 2008. The decrease was mainly due to a decrease in advertising expenses and exhibition expenses for our sales fairs conducted in June 2009, which should have been held in April. As we missed the competitive period for sales fair, the expenses used for the sales fair decreased.

General and administrative expenses decreased by 22.47% from $632,000 for the three months ended September 30, 2008 to $520,000 for the same period in 2009, and decreased by 25.75% from $2,078,000 for the nine month ended September 30, 2008 to $1,573,000 for the same period in 2009. The decreases were mainly due to decrease in research and development expenses.

Interest Expenses

Interest expenses were $15,000 and $43,000, respectively, for the three months and nine months ended September 30, 2009 compared to $19,000 and $50,000, respectively, for the same three-month and nine-month periods in 2008. The decrease was mainly due to decrease in interest rates on short-term borrowings.

Income Tax Expenses

Income tax expenses for the three months and nine months ended September 30, 2009 amounted to $922,000 and $3,183,000, respectively, compared to $304,000 and $2,364,000 respectively, for the same three-month and nine-month periods in 2008. The increase in income tax expenses was attributable to an increase in pre-tax income. Our statutory income tax rates were 25% in 2008 and 2009. Effective tax rates for the nine-month periods ended September 30, 2009 were greater than 25% because of a change in management’s estimate of the tax liability for 2008 based on information that became available during the period.

Net Income

Net income for the three months and nine months ended September 30, 2009 were $2,737,000 and $8,822,000 respectively, an increase of 256.38% from $768,000 for the same three-month period in 2008, and an increase of 26.95% from $6,949,000 for the same nine-month period in 2008. The increase for the three months period was mainly due to the two-month delay in our 2009 autumn/winter sales fair, held in June rather in April as in previous years. Thus, sales orders from the fair occurred mostly in the third quarter. For the nine months period, the increase was mainly due to our marketing efforts and the expansion of our sales network period-over-period.

Liquidity and Capital Resources

As of September 30, 2009, we had cash and cash equivalents of $9,328,000, other current assets of $8,130,000 and current liabilities of $7,465,000. We presently finance our operations primarily from the cash flows from our operations, and we anticipate that this will continue to be our primary source of funds to finance our short-term cash needs. If we require additional capital to expand or enhance our existing facilities, we will consider debt or equity offerings or institutional borrowing as potential means of financing.

Net cash provided by operating activities for the nine months ended September 30, 2009 was $11,356,000 compared with net cash provided by operating activities of $4,785,000 for the same period in 2008. This increase was mainly attributable to increase in accounts payable.

There was no cash used in investing activities for the nine months ended September 30, 2009, compared with $52,000 used in investing activities for the same period in 2008. This decrease in net cash for investing activities was mainly because we did not purchase any property, plant and equipment during the nine months ended September 30, 2009.

Net cash used in financing activities was $4,896,000 for the nine months ended September 30, 2009, compared with $2,990,000 net cash used in financing activities for the same period in 2008. The increase in net cash used in financing activities was mainly due to dividend payments to the private shareholders prior to share exchange transaction with Peng Xiang.

As of September 30, 2009, our inventories increased to $790,000 compared with $657,000 as of September 30, 2008, as we were in production for extra orders received in the sales fair in June 2009. However, finished goods decreased to $180,000 as of September 30, 2009 from $242,000 as of September 30, 2008, resulting from more reliance on O.E.M. products which are directly delivered to the distributors from suppliers.

As of September 30, 2009, we had accounts receivable of $7,333,000, compared with $6,890,000 as of September 30, 2008. The accounts receivable turnover ratio decreased to 44.71 days as of September 30, 2009 from 72.21 days as of September 30, 2008.

As of September 30, 2009, we had accounts payables of $5,049, compared with $1,623 as of September 30, 2008. The increase was mainly due to increase in purchase to meet sales orders.

As of September 30, 2009, we had accrued expenses and other payables of $252,000, compared with $1,113,000 as of September 30, 2008. The decrease was mainly due to a decrease in advertising subsidy payable which was mainly settled in March, June and September 2009.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We present below a summary of the most significant assumptions used in our determination of amounts presented in the tables in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows.

The following tables summarize our contractual obligations as of September 30, 2009, and the effect that these obligations are expected to have on our liquidity and cash flows in future periods.

	Payments Due by Period

	Total			Less than 1 year			1 Year +
	(in thousands of dollars)
Contractual Obligations:

Total Indebtedness		$	734		$	734	$

Operating Leases			7			7

Total Contractual Obligations:		$	741		$	741	$

Total indebtedness consists of installment loans from financial institutions in the PRC.

Operating lease amounts include minimum lease payments under our non-cancelable operating leases for office facilities, as well as limited computer and office equipment that we utilize under certain lease arrangements.

Off-Balance Sheet Arrangements

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Currency Risk

All of the Company’s business is carried out in the PRC and uses the RMB as its only functional currency. Hence, the effect of the fluctuations of the RMB exchange rate relative to other currencies is considered minimal to our business operations. However, we use the U.S. dollar for financial reporting purposes and therefore, fluctuations in the exchange rate between the RMB and the U.S. dollar will result in increases or decreases in other comprehensive income or loss. Conversion of RMB into foreign currencies is regulated by The People’s Bank of China through a unified floating exchange rate system. Although the PRC government has stated its intention to support the value of RMB, there can be no assurance that such exchange rate will not again become volatile or that RMB will not strengthen or devalue significantly against the U.S. dollar. Exchange rate fluctuations may adversely affect the value, in U.S. dollar terms, of our net assets and income derived from our operations in the PRC.

Credit Risk

The Company’s credit risks are primarily attributable to trade receivables and bank balances.

The Company’s maximum exposure to credit risk in the event of the failure of counterparties to perform their obligations as at September 30, 2009 in relation to each class of recognized financial assets is the carrying amount of those assets as stated in the consolidated balance sheets. In order to minimize credit risk, management reviews the accounts receivable aging and adjusts the allowance based on historical experience, financial condition of customers and other relevant current economic factors. As of September 30, 2009, all of the trade receivable balances were aged less than 90 days and management has determined that no allowance for uncollectible amounts is required.

The Company’s bank balances and cash are deposited with banks of high credit rating and the Company has limited the exposure to any single financial institution. The credit risk on liquid funds is limited because the counterparties are banks with good credit-rating. The Company has no significant concentration of credit risks as its exposure is spread over a number of counterparties and customers.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of September 30, 2009, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the applicable period to ensure that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the quarter ended September 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None

Item 1A. Risk Factors.

There have been no material changes in our risk factors from those disclosed in Part II, Item 1A, of our Quarterly Report on Form 10-Q as of and for the quarter end March 31, 2009.

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

None

Item 3. Defaults upon Senior Securities.

None

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

None

Item 5. Other Information.

None

Item 6. Exhibits.

Exhibit Number		Description

2.1		Share Exchange Agreement (3)
3.1		Articles of Incorporation of Sino Charter, Inc. (1)
3.2		Articles of Merger filed with the Secretary of State of Nevada on March 4, 2009 and which is effective March 20, 2009 (4)
3.3 3.4		Certificate of Correction filed with the Secretary of State of Nevada on March 6, 2009 (4) Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock, filed October 23, 2009 with the Nevada Secretary of State (6)
3.5		Bylaws of Sino Charter, Inc. (1)
3.6		Amendment to the Bylaws of Sino Charter, Inc. (3)
4.1 4.2		Specimen Stock Certificate of Sino Charter, Inc. (1) Form of Certificate of Series A Convertible Preferred Stock (6)
10.1		Form of Share Purchase Binding Letter of Intent, dated September 29, 2009 (5)
10.2		Form of Securities Purchase Agreement, dated October 27, 2009 (6)
10.3		Form of Warrant (6)
10.4		Form of Escrow Agreement (6)
31.1		Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended *

31.2 32.1 32.2		Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended * Certifications pursuant to 18 U.S.C. Section 1350 * Certifications pursuant to 18 U.S.C. Section 1350 *
99.1		Consulting Services Agreement (3)
99.2		Operating Agreement (3)
99.3		Equity Pledge Agreement (3)
99.4		Option Agreement (3)
99.5		Voting Rights Proxy Agreement (3)
99.6		Audit Committee Charter (2)
99.7		Disclosure Committee Charter (2)

* Filed Herewith.

(1) Previously filed with our Registration Statement on Form SB-2 on February 9, 2007.

(2) Previously filed with our Annual Report on Form 10-K on March 7, 2008.

(3) Previously filed with our Current Report on Form 8-K on February 13, 2009.

(4) Previously filed with our Current Report on Form 8-K on March 20, 2009.

(5) Previously filed with our Annual Report on Form 8-K on October 5, 2009.

(6) Previously filed with our Current Report on Form 8-K on October 30, 2009

SIGNATURES

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

	VLOV INC.
	(Registrant)

Date: November 12, 2009	By:	/s/ Qingqing Wu
		Qingqing Wu
		Chief Executive Officer

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Vlov (VLOV) Inactive 10-Q2009 Q3 Quarterly report

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